If my house is foreclosed, would I have any obligations to the lender?   

Mortgagor is required to pay for mortgage insurance, or PMI, for as long as the principal of his primary mortgage is above 80% of the value of his property. In most situations, insurance requirements are sufficient to guarantee that the lender will get all his money back, either from foreclosure auction proceeds or from PMI. Nevertheless, in an illiquid real estate market or following a significant drop in real estate prices, it may happen that the property being foreclosed is sold for less than the remaining balance on the primary mortgage loan, and there's no insurance to cover the loss. In this case, the court overseeing the foreclosure process may enter a deficiency judgment against the mortgagor. Deficiency judgment is a lien that obligates the mortgagor to repay the difference. It gives lender a legal right to collect the remainder of debt out of mortgagor's other assets (if any). There are exceptions to this rule, however. If the mortgage is a non-recourse debt (which is often the case with residential mortgages), lender may not go after borrower's assets to recoup his losses. Lender's ability to pursue deficiency judgment may be restricted by state laws. If the lender chooses not to pursue deficiency judgment—or can't because the mortgage is non-recourse—and writes off the loss, the borrower may have to pay income taxes on the unrepaid amount. Any other loans taken out against the property being foreclosed are "wiped out" by foreclosure (in the sense that they are no longer attached to the property), but borrower is still obligated to pay them off if they are not paid out of foreclosure auction's proceeds.

Types of foreclosure

Foreclosure by judicial sale - Foreclosure by judicial sale requires the mortgage holder to proceed carefully in order to ensure that all affected parties are included in the court case, so the purchaser of the foreclosed property receives valid title to the property.

Foreclosure auction - When a bank auctions a repossessed property, they will typically set the starting price as the remaining balance on the mortgage loan. Many times, however, in this market the bank will set the starting price at a lower amount if it believes the real estate securing the loan is worth less than the loan. In the case where the remaining mortgage balance is higher than the actual home value, known as an Upside-down mortgage, the bank is unlikely to attract auction bids at this price level. A house that went through foreclosure auction and failed to attract any bids becomes property of the bank. The bank will typically try to sell it at a loss later through standard channels.

Foreclosure by power of sale -  involves the sale of the property by the mortgage holder not through the supervision of a court. Where it is available, foreclosure by power of sale is generally a more expedient way of foreclosing on a property than foreclosure by judicial sale. Proceeds from the sale go first to the mortgage holder, then to other lien holders, and finally to the mortgagor.

Deed in lieu of foreclosure -  offers several advantages to both the borrower and the lender. The principal advantage to the borrower is that it immediately releases him from most or all of the personal indebtedness associated with the defaulted loan. The borrower also avoids the public notoriety of a foreclosure proceeding and may receive more generous terms than he would in a formal foreclosure. Advantages to a lender include a reduction in the time and cost of a repossession, and additional advantages if the borrower subsequently files for bankruptcy. In order to be considered a deed in lieu of foreclosure, the indebtedness must be secured by the real estate being transferred. Both sides must enter into the transaction voluntarily and in good faith. The settlement agreement must have total consideration that is at least equal to the fair market value of the property being conveyed. Generally, the lender will not proceed with a deed in lieu of foreclosure if the current fair market value of the property exceeds the outstanding indebtedness of the borrower. Because of the requirement that the instrument be voluntary, lenders will often not act upon a deed in lieu of foreclosure unless they receive a written offer of such a conveyance from the borrower that specifically states that the offer to enter into negotiations is being made voluntarily. Neither the borrower nor the lender is obliged to proceed with the deed in lieu of foreclosure until a final agreement is reached.

Strict foreclosure - Under strict foreclosure, when a mortgagor defaults, a court orders the mortgagor to pay the mortgage within a certain period of time. If the mortgagor fails, the mortgage holder automatically gains title, with no obligation to sell the property. Strict foreclosure was the original method of foreclosure, but today it’s not available in State of Illinois or Wisconsin.


Homestead Exemption

If you are sued for a debt that is not related to the house, the first $75,000 of equity in your home is protected from foreclosure under Connecticut law. The protection does not apply against the holder of first or second mortgage.

The Right of Redemption

At the time the judge issues the judgment, s/he will also set the law day or the sale date. Before or on this day, you can exercise your right of redemption. This means that you pay off the mortgage, all interest due, any court costs, attorneys' fees, title search fees and appraisal fees. If you redeem you will need to get a Satisfaction of Judgment from the lender. This form should indicate that you paid off (or satisfied) the amount of the judgment. You must file the Satisfaction of Judgment with the court clerk and file a certified copy of it, along with the judgment, with the town clerk where the property is located. By redeeming, you reinstate your original rights of ownership.

What Is Short Sale Of The Property?

When a bank or mortgage lender agrees to discount a loan balance due to an economic hardship on the part of the mortgagee. Extenuating circumstances delegate whether or not banks will discount a loan balance. These circumstances are usually related to the current real estate market climate and the individual borrower's financial situation. A short sale typically is executed to prevent a home foreclosure. Often a bank will choose to allow a short sale if they believe that it will result in a smaller financial loss than foreclosing.

Foreclosure, how does it affect my credit?

Not only will it affect your credit score now and for the next 7 years, but future creditors, lenders, when you want to buy a house, a car, to get a credit card, will pull your credit and see that negative event in your financial history and then they will either not extend a loan or credit too you, or will see you as a “risk” and will give you the loan you want, but at a high interest rate. A credit rating is your financial history and the credit score is a summary of that history that represents your credit worthiness.

What Is My Credit Score?

Your credit history and score reflects hundreds of parameters in one's financial history. These hundred of variables are included in your credit and the calculation of your credit score, but I only mentioned the bigger ones here. Just paying your bills on time, as important as that is, may not rescue you from other credit pitfalls. Bills, mortgages, your monthly rent, credit cards, long overdue or overlooked, can show up as a blotch on your credit. A cable, or credit card bill, that didn't make it to your new address, or you mail them your payment, but it gets lost in the mail. It may be the store, credit card company, or post offices the error, but it is YOUR credit that gets hurt. The amount of unpaid credit cards, even if they're never late. The more you owe the less credit worthy you are. The amount of credit you already have. It's not always the More, the Merrier. The kinds of credit cards you have, some are good believe it or not. Visa, MC, AMEX, Discover, etc. are considered good credit; others may affect your credit negatively. Such as credit extended to you at a store, or the mall when you go out and buy appliances, etc. Cancel and make sure you get rid of the bad credit cards as quickly as you can, unpaid medical services and collections.

Credit Scores

Scores of 700-850 = a smooth loan process and the best interest rates
Scores of 550-699 = medium risk to the lender and you get higher interest rates as a result.
Scores of 300-549 mean "sorry, no loans or credit cards".

The important thing to know is that credit scores aren't an exact science and these are only some of the variables. Besides affecting the kind of loan you are able to get your past credit history will also tell them how to treat your account if it has already gone into default. There are several types of credit scores, but the most widely used in the United States is the FICO score. FICO stands for Fair Isaac Corporation. This company developed the mathematical formula that is used to calculate your credit score. This score is one of the most important factors in determining your credit worthiness in the United States.