Why It's Crucial to Avoid Foreclosure Proceedings (Aside From The Obvious)

As written before in this blog, nobody applies for a VA home loan thinking about default or foreclosure as a possibility. But circumstances can change; spouses lose jobs, military people can be affected by reduction-in-force cuts, and rising prices on food and gas can make it difficult to pay the bills.

There are borrowers who have a distorted idea of what it means to experience a foreclosure; some believe that foreclosure simply results in the loss of the property, which leads some desperate home owners to simply walk away from the home completely. But foreclosure is much more than simply the bank taking the home back after a borrower stops paying the monthly mortgage loan payments.

Legal fees are one of the first things a borrower is liable for, whether the loan is a VA insured mortgage, conventional loan or a sub-prime mortgage. Any fees the bank may have to pay a lawyer to initiate foreclosure proceedings could be passed on part or in whole to the borrower.

Some borrowers who try to save the home with refinancing, loan modification or other means often discover they must pay any legal fees in addition to the delinquent loan amount in some circumstances.

There’s another reason why borrowers should avoid foreclosure proceedings if at all possible. Banks may not foreclose and/or repossess the property right away. The home owner may find the entire process can drag on from the end of one year to the beginning of another or longer.

When this happens, the borrower is liable for any property taxes incurred as long as they have legal possession of the home. From the time foreclosure proceedings are certain to the time they are carried out, the home owner may be responsible for two years (or more?) of property taxes they can’t afford to pay on top of their other debt.

According to the VA official site, “The US Department of Veterans Affairs urges all veterans who are encountering problems making their mortgage payments to speak with their servicers as soon as possible to explore options to avoid  foreclosure.”

If you have a VA loan and are in financial difficulty, contact the VA as soon as possible to avoid default and to make arrangements for VA loan or credit counseling, plus intervention where appropriate between the VA and your lender.