Foreclosure is the legal process through which a lender or bank takes ownership of a property, stripping the homeowner of any rights to the property.

Foreclosure can begin as soon as a homeowner is late with a monthly payment or in default. Most lenders, however, prefer to work out alternatives with the homeowner before repossessing the home. If an alternative cannot be worked out, the foreclosure process begins.

Repercussions

Foreclosure negatively affects the homeowner’s credit, future mortgage rates, employment and security clearances.

Credit scores could be lowered by 250 to 300 points and the foreclosure will stay on a person’s credit history for 10 years. A homeowner is ineligible for a Fannie Mae Loan for five years and will have their future mortgage rates affected on any loan for the next seven years. Current employers have the right to check employees’ credit regularly and a foreclosure could be grounds for reassignment or termination. A foreclosure is detrimental to future employment with companies that require credit checks on all applicants.

In addition, a homeowner could face a deficiency judgment for all or part of the remaining balance of the loan after foreclosure sale.