I. What is a foreclosure? Foreclosure is a process where a property owner fails to make their mortgage payment, therefore creating a delinquent loan. Once the property becomes delinquent, the homeowner begins to receive letters from the lender requesting payment for the mortgage. If the homeowner does not make an effort to make any payments within 90 days, the lender will send them a notice in the mail stating that their home will be sold at public auction.
Each state has its own statutes and regulations governing foreclosure, although foreclosures in practically all states now follow the same basic formats. Nevertheless, there are different types of foreclosure formats:
Foreclosure by sale The most common type of foreclosure is the foreclosure by court sale. Upon default , the lender files a suit for foreclosure . If the plaintiff lender ( mortgagee ) is successful, the court will order that the subject property be sold at a foreclosure sale.
Power of sale foreclosure Some mortgage loans are secured with a deed of trust (sometimes called trust deed ), instead of a regular mortgage. This is an important difference, as the deed of trust normally contains a "power of sale" provision, which allows the trustee to sell the property without having to file a suit or go to court.
Deed in lieu of foreclosure Some borrowers in default may wish to avoid the entire foreclosure process altogether. Such borrowers may instead simply wish to surrender the property and move on with their lives as quickly as possible. A "deed in lieu of foreclosure" would then be used to convey the property from the borrower to the lender. In exchange, the lender will consider the loan paid in full.
Tax foreclosures Two of the basic powers that government can wield are taxation and eminent domain . Taxation is the ability levy taxes on people and property. Eminent domain is the government's power to take property away from private ownership. A tax foreclosure combines those two powers.
Foreclosure is a long and difficult process for both lender and borrower. Most foreclosures take at least six months, while many can take up to two years to complete. The typical foreclosure process normally goes as follows:
Delinquency The foreclosure process normally begins with a delinquency , particularly of the required loan payments
Default and acceleration The first true step in the foreclosure process is the notice of default. With that notice of default, the lender will demand that the lender cure the default within a specified period (usually 15 to 30 days).
Foreclosure suit Most courts require the lender to attempt to negotiate a reinstatement with the borrower, before acceleration can be validly enforced. After the acceleration demand is issued, the lender must give the borrower additional time to satisfy the acceleration demand
Judgment and sale The lender has no choice but to wait for the court to process the case. The eventual conclusion, unless the borrower is able to cure the default or defeat the suit, is usually a judgment for foreclosure
Deficiency judgment Lenders will occasionally accept a lower-than-desired bid and take a loss. For example, if the judgment amount is $100,000, but the lender believes that it can only market the property for $75,000, they will accept a lower bid in that market price area. The lender will then go after the borrower for that shortfall, by obtaining a deficiency judgment.
Statutory redemption period Many states have statutory redemption period, which give property owners the opportunity to redeem their properties after foreclosure. The winning bidder, whether it is the lender or a foreclosure real estate investor, must respect the borrower's statutory right of redemption. [Note that the borrower's equitable right of redemption expired with the foreclosure judgment and sale.]
Real estate owned properties Mortgaged properties that revert back to the lender because of foreclosure (or deeds in lieu of foreclosure) are normally called REOs, or real estate owned properties. Mortgage lenders are not in the business of owning and managing real estate. They will try to sell them as soon as possible to convert that real estate into cash.
Eviction The highest bidder (and thus winner) of the foreclosure auction must respect any statutory rights of redemption that the borrower may have. Once the redemption period expires, however, the new owner will move to evict the erstwhile borrower.
IV. How to Avoid foreclosure Special Forbearance. Your lender may be able to Arrange a repayment plan based on your financial situation and may even provide for a temporary reduction or suspension of your payments Mortgage Modification. You may be able to refinance the debt and/or extend the term of your mortgage loan. This may help you catch up by reducing the monthly payments to a more affordable level. Partial Claim. Your lender may be able to work with you to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage current. When your lender files a Partial Claim, the U.S. Department of Housing and Urban Development will pay your lender the amount necessary to bring your mortgage current. Deed-in-lieu of foreclosure. As a last resort, you may be able to voluntarily "give back" your property to the lender. This won't save your house, but it is not as damaging to your credit rating as a foreclosure. Pre-foreclosure short-sale. This will allow you to avoid foreclosure by selling your property for an amount less than the amount necessary to pay off your mortgage loan.
V. How to stop foreclosure Call your lender and talk to someone in the loan loss mitigation department. These people are trained to help people in foreclosure. You can ask if you qualify for a short sale or a loan modification. For example, you might find a real estate investor willing to buy the home for $300,000 when you owe the bank $400,000. The house might be worth $320, 000 and the bank does not want to have to take the home back and try to sell it themselves. So they go through a review and appraisal process to see if your short sale proposal make benefits them financially In order to do a short sale you will usually need someone to help you with some of the paper work to get the lender to appraise your home correctly. If you successfully do a short sale then you will not have a foreclosure on your credit report. Or you can ask for a special forbearance. The bank will sometimes lower your payment or even allow you to stop making payments for a short time. If you have had a sudden job loss or hardship then the banks are usually willing to work with you during the slow times
All across the country more and more families are losing their homes.
According to statistics published by the Mortgage Bankers Association of America, foreclosure rates are at their highest level in 30 years .
VII. Conclusion Most homes can be saved from foreclosure by taking the proper action. The property owner should seek the advice of a professional foreclosure consultant with good lender negotiating skills as soon as possible. The faster the property owner asks for help, the more options there are available, and the homeowner will have a greater chance for success. Many investors are working with homeowners in foreclosure as well. Some focus on facilitating short sales. Other investors partner with people affected by foreclosure, using their cash and credit to buy the home, while the homeowner makes the monthly payments on the new home and they split the potential profits down the road.