Foreclosure is a procedure a mortgage lender can use to recover your mortgage balance if you are unable to make your mortgage payment; however, lenders typically only foreclose as a last resort. This is because the costs of foreclosure average about $60,000 per home, according to Jonathan D. Epstein of "The Buffalo News." Several costs are paid after the foreclosure sale.
Mortgage Balance
After a foreclosed home is sold through an auction or a real estate agent or broker, the proceeds of the sale are used to pay for your mortgage balance. If money is left over, the lender will pay you the difference, minus other costs associated with initiating and completing the foreclosure.
Deficiency
A foreclosure sale may cover the balance of your mortgage if you had paid down a substantial portion of your balance before going into foreclosure. However, if you owe more on your home than the foreclosure sale price, the lender will hold you responsible for the difference, called a deficiency. You will have to pay the deficiency to the mortgage company to pay off the loan, even though you no longer own the home.
Foreclosure Costs
After a foreclosure, you may be responsible for the lender's costs associated with executing the foreclosure action. These costs may include attorney's fees, auction fees, Realtor commissions, appraisal costs and insurance on the home for the time between the foreclosure action and the sale. In some states, the mortgage lender must file a foreclosure action in court; if your lender executes judicial foreclosure, you will typically be responsible for court costs. Your lender may add these costs to your deficiency amount.
Considerations
If you do not pay a deficiency amount after foreclosure, the lender may sue you for the deficiency, depending on your state's laws. After obtaining a judgment for the deficiency, the lender may garnish funds in your bank account and liquidate your personal property. In most states, it may also garnish up to 25 percent of your wages to pay the deficiency amount.
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