You entered into a legal contract with the mortgage lender to repay the balance of this loan and interest. When you stop making payments, the mortgage lender starts the process leading to the sale of the house. The names on the deed of trust have been thought to be the borrowers. In this respect, if your name is on the deed of trust, then you’re a party to the foreclosure proceedings as a borrower or co-borrower on the property.
Deed of Trust
Your deed of trust is a contract between you and your mortgage lender. You borrow money from the lender and in turn promise to repay that cash plus interest in monthly payments for the term outlined in the contract. The trustee holds the name for you until you pay the balance. In the event you don’t make payments, then the trustee may sell the house at auction to recover the money the lender loaned to you. Each name on the deed of trust is really a borrower or a co-borrower for the purposes of the property and the foreclosure proceedings.
Foreclosure Process
When the borrower fails to make payments, the lender starts the foreclosure process. The Notice of Default is the official notice that the lender is trying to auction the property. You receive 90 days in the NOD to make good on the loan. After that 90 days, the creditor files a Notice of Sale. In about three weeks, the trustee sells the property at auction. You have up to five days prior to the auction to pay for the balance on the loan to save the property from foreclosure. Each document filed for the foreclosure process goes to every individual on the deed of trust by certified mail.
Credit Reports
As a person on the deed of trust, the foreclosure looks on your credit report. A public record entry appears, dropping your credit score by up to 160 points. The past due payments also show up on the mortgage entrance, dropping your score by up to 135 points. You leave the foreclosure process with bad credit and a very low credit score. Bad credit hurts your ability to receive future credit, increases your insurance plan premiums and also affects your ability to have work.
Another Mortgage
In addition to poor credit, a foreclosure on your credit report hinders your ability to have another mortgage loan in the long run. Conventional lenders may refuse your programs until the foreclosure falls off your credit report — to get up to seven decades. Government-backed mortgage loans need at least three to five years in the foreclosure for approval. You need excellent credit involving the foreclosure as well as the application to get approval.
Tax Implications
Utilizing a non-judicial foreclosure ensures that the lender can’t get a deficiency judgment for the remainder owed. Instead, the lender issues a 1099-C Cancellation of Debt form to the IRS. You must report the forgiven balance on your taxes as taxable income raising your total tax liability. The Mortgage Debt Forgiveness Act forgives debt accumulated by way of a foreclosure for tax years 2007 through 2012. After 2012, you have to pay taxes on the cancelled debt.