Recovering after Foreclosure

Along with filing bankruptcy, having a foreclosure against your home is one of the most serious financial actions that can be taken, and certainly is among the most devastating for individuals. In a foreclosure, a person’s home is repossessed or sold because the homeowner has not satisfied due payments to the lender. While there are ways to prevent foreclosures in many situations, sometimes there is little a homeowner can do to avoid foreclosure.

A person facing foreclosure inherently is facing many obstacles after the fact, as well. Most notably, the person will be without a home, will have a heavily damaged credit report, and may very well still be having trouble with debts owed.

When a judgment is made against you and your house is foreclosed upon, you will not have much time at all before you must leave the property. Generally, you will be considered an “occupant in adverse possession” of the home right away, and may have just a day or two up until a month to leave voluntarily depending on your state and local laws.

It probably goes without saying that finding a new place to live must be your first priority when faced with foreclosure. Rent an apartment or consider staying with family for a while, because purchasing a new home should not be a goal until you have prepared to do so properly.


Limiting the fallout

After finding a place to live, it is time to get to work. The first step is to take back control of your finances. Despite losing your home, it actually is entirely possible that you still may owe money to your mortgage lender if the sale of your home did not generate enough money to cover the balance. Especially in this case, but if you have alternate debts as well, you should seek professional assistance to get your finances in order.

One of your best options may be to work with a credit counselor, a certified professional who will help you to develop a budget, manage your debts, and help you to plan for the future. You or your counselor may try negotiating with your creditors to come up with a repayment plan, and/or to alter the terms and conditions of your debts to make them more manageable. If you realistically never will be able to repay the debts that you owe, then you might consider debt settlement, whereby debts themselves are negotiated.

Once you have a financial plan in place, then it is time to work on improving your credit score. Few situations are as damaging to credit as are foreclosures, so you will find it very difficult to have new credit extended to you unless you can prove your financial responsibility.

Obtain copies of your credit reports to ensure that there are no negative errors listed. If there is a mark that you wish to dispute, then you should take action to repair your credit by informing the appropriate credit bureau of the error. Disputed marks that cannot be disproved must be removed by law. Cleaning up your report in this way will help to improve your credit rating. (More on credit repair.)

Your foreclosure will remain on your reports for 7 years. Because foreclosure is a legal action, it is “double verified” -- listed both on your report and on public record. Thus, it is nearly impossible to have this mark removed. Fortunately, not all potential creditors will put the same amount of emphasis on your foreclosure. Some concentrate more on your raw score rather than on individual marks, so work on making your score as strong as possible.

One of the best ways to start rebuilding your score is to take out a credit card or two since this type of credit is easier to acquire than most others. If you are able to get a traditional credit card, then your interest rate will be very high. An alternative would be to apply for a secured credit card or two, which require that you put some money down as a deposit before credit is extended to you. Use your card(s) regularly and lightly, and you will see your credit start to improve as you make consistent payments. (More on building credit.)


Buying a new home

If you once were a homeowner, chances are that you want to be a homeowner again. There are lenders that will offer you a mortgage quite soon after your foreclosure, but it definitely is best to wait about two years if possible. At that time, you should be able to obtain a new mortgage with a traditional lender as long as your credit is at about 680 or higher.

If is lower than about 680, then you might have to borrow from a sub-prime lender. Such mortgages will come with less attractive terms and conditions than other mortgages, will be less lenient, and also will come with a high interest rate.

Even if your credit score is in check, you also probably will need a higher-than-normal down payment in order to obtain a reasonable mortgage.

Conclusion

Recovering after a foreclosure is difficult, but very much doable with hard work and persistence. Work with a debt professional to get your finances in order as soon as possible, slowly but surely rebuild your credit, and find yourself getting beyond the burden your financial past.