Last week, we examined the process of "nonjudicial" foreclosures used by home lenders in Georgia. Unlike some other states, our laws allow banks to move quickly when a borrower stops making the required monthly payments.
If you are facing foreclosure, know in advance that there may be consequences after the fact:
- Your credit history will be severely damaged for several years.
You probably won't be able to get any new credit for at least two years. And even after that, the foreclosure will negatively impact your credit report for several more years. This is the main deterrent to abandonment of your mortgage obligation.
While you probably won't be able to obtain a new home loan for some time, it is possible that you might qualify for an entry-level FHA loan after as little as two years. That approval would likely be contingent on a near-perfect history since the foreclosure.
- You may lose your existing credit relationships.
Creditors often monitor your credit score to make sure you aren't in trouble. If you are, they often have the option of raising your interest rate to reflect the increased risk of default.
- You might be sued for the deficiency.
After a foreclosure, the lender will try to sell the property for whatever they can get. After they dispose of the property, they have the right to pursue you for any amount not covered by the proceeds of the sale. They will have to sue you personally to recover the debt, and if they are able to obtain a judgment against you, they could choose to seek a garnishment of your wages or to attach any assets they can discover.
In order to have this option, the lender must "confirm" the foreclosure within 30 days of the auction. This confirmation procedure involves additional attorney fees and court costs, and lenders are reluctant to spend that money unless they feel confident of finding substantial assets you may own or control.
Most of the foreclosure attorneys I interviewed for this column told me candidly that their clients, in most cases, were not seeking confirmation. Their reasoning was that if the borrower was unable to make payments on the loan in question, then it was likely that the borrower was near insolvency, and seeking a deficiency judgment would prove futile.
However, all advised me that walking away from a mortgage should only be undertaken after all other possible solutions have been explored. I should add that only an attorney skilled in mortgage law is qualified to advise you of your legal rights regarding a foreclosure.
The best advice I can give you is to contact your lender regarding your loan as soon as you see problems developing, and seek a modification or repayment plan you can afford. If your lender is unable to offer a plan you can accept, talk with an attorney as soon as possible.
John Adams is an author, broadcaster and investor. He answers real estate questions at noon on Saturdays on WGKA (920 AM). For more real estate information or to make a comment, visit www.money99.com.
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