Friday, July 6, 2012

Bank Repos & Foreclosures

When you take out a loan from a bank, you are obliged to pay it off. With secured loans, the bank has the right to take possession of your assets if you fail to make your payments. The bank usually allows you some time to try to bring the loan current before seizing your assets.

Features

    If you find yourself in financial distress and can't afford payments on your secured loans, your lending bank may take possession of your secured assets. A secured loan means that you give the bank the right to take possession of an asset in case you fail to meet your loan obligations. Foreclosure exclusively refers to the repossession of a property on which you owe a mortgage, while repossession may refer to any secured asset, usually a vehicle, that the bank takes over.

Timing

    With a mortgage, the bank usually gives you at least three months after you miss your first payment before starting on the foreclosure process. Some lenders even take up to one year. Even after the foreclosure process begins, you may still be able to take action to stop it. On the other hand, repossession of other unsecured assets usually occurs over a shorter period of time. In some states, the bank can take possession of a secured vehicle as soon as you miss a payment.

Options

    With both mortgages and other secured loans, you have more options if you contact the bank as soon as you realize that you will have difficulties affording your loan payments. Your bank may be willing to allow you to make a late payment or modify your loan so you can make lower payments. If you eventually have to give up your home or other secured assets, you may still benefit from having to pay less in fees or suffering less damage to your credit score.

After the Foreclosure or Repossession

    After the bank takes possession of your asset, the credit bureaus usually take note of the incident and lower your credit score. This makes it more difficult for you to obtain loans in the future. Depending on your state, the bank may also demand that you pay the deficiency balance, which is the difference between your outstanding amount and the money the bank receives from selling your asset. If you can't afford the deficiency balance, you may have to resort to bankruptcy.

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