What Is Foreclosure And How Does It Work?
No one wants to go through a foreclosure, but when it happens it can be a frustrating experience. When you enter into a loan agreement with the bank in order to purchase a home, then the home becomes collateral for the loan. As long as you’re making the payments when you’re supposed to and stay in relative good standing, then avoiding foreclosure becomes easy. The problem comes when very little can be done in order to avoid foreclosure.
Here are some of the basics you need to know about foreclosure and exactly what it is:
- A foreclosure takes place for the most part when a borrower defaults on their mortgage payments. And defaulting on mortgage payments is seen as being really bad, because in most cases several attempts have been made on behalf of the bank to let a borrower know what their options are for avoiding this consequence. Issues come up when a borrower is avoiding the banks attempts at communication.
- The process doesn’t take but a few missed mortgage payments in order to be initiated. Before anything happened though you would receive what is called a Notice of Default. During this time you still may be able to take measures in order to avoid your home going into foreclosure. After about the third or fourth missed payment is when you would risk receiving such a notice.
- The time it’s going to take in order for the entire process to be completed is going to depend on several factors. The primary element is going to be whether or not the lender and the borrower can reach some form of negotiation. Negotiations would be a last attempt in order to stop foreclosure and this should be something a borrower is open to. If foreclosure simply can’t be avoided, then the entire process can take as little as a few months to as long as a year.
Banks in Malaysia actually would prefer to avoid the foreclosure process whenever possible, because it typically means they are going to lose money. In order for the bank to recoup their investment they’ll have to put the house up for auction. These auctions are usually frequented by investors who are looking to get the best deals on a house and rarely by people looking to actually live in the home themselves.
Not only this, but there are instances when certain homes take a long time to sell. Each month a bank has possession of the house it’s going to cost them money. So they would prefer to cut their losses as fast as possible. On part of the borrower, a foreclosure is a serious black stain on their record. Not only is this going to increase their risk profile should they want to purchase a home in the future, but getting any form of credit might become tougher.
Foreclosure should be avoided at all costs and it starts with the borrower. Don’t be afraid to communicate with the bank. It only makes things works and it comes off like you’re avoiding them. Ask what you’re options are and which one is the most beneficial for your particular situation.
Do your best to avoid getting into a situation where you know your finances aren’t enough to sustain you. One way to do this is to not purchase a home that right where you can afford it, but maybe a little bit under what you can actually afford. In this way you hedge your risk and banks like to see that you’re thinking about things in the same fashion as they do.