Understanding the foreclosure process in Massachusetts is an important part of navigating your own home foreclosure.
Before we dive in…
Understanding the Foreclosure Process in Massachusetts
What is foreclosure anyway?
Foreclosure is the legal process that lenders use to take back property securing a loan, generally after the borrower stops making payments.
Foreclosure is no fun. But just know that it’s not the end of the world.
When you know how foreclosure in Massachusetts works… it arms you with the knowledge to make sure you navigate it well and come out the other end as well as possible.
The Basic Stages of A Foreclosure
There are a few stages that are important to any foreclosure process.
Foreclosure works differently in different states around the country.
The two ways different states use to foreclose upon a property are: judicial sale or power of sale.
In either scenario, foreclosure typically doesn’t go to court until 3-6 months of missed payments have elapsed. Usually (but not always), a lender will send out many notices that you are in arrears – overdue or behind in your payment.
Under Judicial Foreclosure:
- Your mortgage lender must file suit in the court system.
- You’ll get a letter from the court demanding payment.
- Assuming the loan is valid, you’ll have 30 days to bring payment to court to avoid foreclosure (and sometimes that can be extended).
- If you don’t pay during the payment period, a judgment will be entered and the lender can request the sale of your property – usually through an auction.
- Once the property is sold, the sheriff serves an eviction notice and forces you to immediately vacate the property.
Under Power of Sale (or Non-Judicial Foreclosure):
- The mortgage lender serves you with papers demanding payment, and the courts are not required – although the process may be subject to judicial review.
- After the established waiting period has elapsed, a deed of trust is drawn up and control of your property is transferred to a trustee.
- The trustee can then sell your property to the lender at a public auction (notice must be given).
Anyone who has an interest in the property must be notified during either type of foreclosure.
For example, any contractors or banks with liens against a foreclosed property are entitled to collect from the proceedings of an auction.
What Happens After A Foreclosure Auction?
After a foreclosure is complete, the loan amount is paid off with the sale proceeds.
Sometimes, if the sale of the property at auction isn’t enough to pay off the loan, a deficiency judgment can be issued against the borrower.
A deficiency judgment is where the bank gets a judgment against you, the borrower, for the remaining funds owed to the bank on the loan amount after the foreclosure sale.
Some states limit the amount owed in a deficiency judgment to the fair value of the property at the time of sale, while other states will allow the full loan amount to be assessed against the borrower.
Here’s a great resource that lists the state by state deficiency judgment laws, since every state is different.
Generally, it’s best to avoid a foreclosure auction. Instead, call up the bank, or work with a reputable real estate firm like us at Pegasus Home Buyers to help you negotiate discounts off the amount owed to avoid having to carry out a foreclosure.
Experienced investors can help you by negotiating directly with banks to lower the amount you owe in a sale – or even eliminate it, even if your home is worth less than you owe.
The Impact of Foreclosure on Your Credit Score
One of the most significant consequences of going through a foreclosure is the impact it will have on your credit score. Foreclosure will remain on your credit report for seven years, and during that time, it can significantly lower your credit score. This can make it more challenging to obtain loans, credit cards, or rent a property in the future.
The extent to which your credit score will be affected depends on various factors, such as your payment history, the amount of the loan, and your overall financial situation. Generally, the higher your credit score before the foreclosure, the more significant the drop will be. It’s not uncommon for a foreclosure to cause a drop of 100 to 200 points in your credit score.
However, it’s essential to remember that you can work on rebuilding your credit score even after a foreclosure. You can start by ensuring that all your other financial obligations, such as credit card payments and utility bills, are paid on time. Additionally, you can also work on reducing your overall debt and maintaining a low credit utilization ratio. With time and effort, you can gradually improve your credit score and regain your financial footing.
The Emotional Impact of Foreclosure
Going through a foreclosure can be an emotionally challenging experience. Losing your home, a place where you’ve built memories and shared special moments, can be incredibly distressing. Moreover, the stress of dealing with financial difficulties and the uncertainty of finding a new place to live can take a toll on your mental health.
It’s essential to acknowledge the emotional impact of foreclosure and seek support to help you through this difficult time. Reach out to friends and family members who can lend a listening ear and offer emotional support. You may also consider seeking professional help from a counselor or therapist who can help you process your feelings and develop coping strategies.
Don’t forget to take care of yourself during this time. Prioritize self-care by ensuring that you get enough sleep, exercise, and eat healthily. Engaging in activities you enjoy and finding ways to relax and unwind can also help you cope with the emotional challenges of foreclosure.
Exploring Alternatives to Foreclosure
Before going through a foreclosure, it’s essential to explore all possible alternatives. In some cases, you may be able to work out a solution with your lender that allows you to avoid foreclosure and the negative consequences associated with it.
Some alternatives to foreclosure include:
- Loan modification: Your lender may agree to modify your loan terms, such as extending the loan term, reducing the interest rate, or deferring payments. This can help make your monthly payments more manageable and give you a chance to catch up.
- Forbearance: In some cases, your lender may agree to temporarily suspend or reduce your mortgage payments, giving you time to get back on your feet financially. Once the forbearance period ends, you’ll need to make up for the missed payments, either through a repayment plan or a lump-sum payment.
- Short sale: If your home’s value has declined, and you owe more on your mortgage than the property is worth, your lender may agree to a short sale. This involves selling your home for less than the remaining balance on your mortgage, with the lender accepting the proceeds as payment.
- Deed in lieu of foreclosure: In this option, you voluntarily transfer ownership of your property to the lender, thereby avoiding foreclosure. This can be less damaging to your credit score than a foreclosure, but it’s essential to understand the potential tax implications and other consequences before choosing this option.
It’s crucial to weigh the pros and cons of each alternative and consult with a reputable real estate professional or financial advisor to determine the best course of action for your specific situation.
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Another Foreclosure Resource For Massachusetts Massachusetts HomeOwners: