7 Facts You Should Know About Foreclosure

by Frank

When a home goes into foreclosure, this either means that the bank has seized the home or the owner decided to voluntarily deed the house to the bank. However, it is very rarely the owner’s decision to actually put the house into foreclosure. It typically happens because of circumstances that are beyond the owner’s control, most of which include an inability to keep making payments on the house. In many cases, it is because they ended up getting laid off or fired from their jobs, had mounting medical expenses that they could not handle, were going through a divorce that complicated their finances and rendered them unable to make house payments when they needed to, et cetera.

In the situation where the owner has stopped making payments on the house, the lender, which is usually a bank, will force the selling of the house that is collateral for the loan. They do this in an attempt to recover the balance of the loan. In layman’s terms, this ends up in the house being seized and sold to another person that the bank feels will be able to make payments on the property. This can be a very difficult process for the person who owns the house, as it often puts them in a very undesirable situation. However, there are certain ways to deal with this very situation once the bank has put the home into foreclosure, and it is very helpful to know more about the process so that you can know more about what you can do to handle the situation if it ever ends up happening to you.

1.Foreclosure Is a Process

The formal process of foreclosure involves the lender or other lienholder obtaining a termination of the equitable right of redemption of the borrower. This will happen either by court order or by operation of law. Typically, what will happen is that the lender will get a security interest from the borrower when the original agreement is made upon purchasing the house. If the borrower ends up defaulting on the loan, the lender will try to repossess the property. However, if the borrower is able to repay the debt, courts of equity will potentially grant the borrower the equitable right of redemption. While the borrower has the equitable right of redemption, the lender will not necessarily be able to repossess the property. The process of foreclosure involves the lender seeking to immediately terminate this right and take back both legal and equitable title to the house in fee simple.

It is also possible for other lienholders to foreclose on the owner’s right of redemption for other types of debts, such as overdue homeowners’ dues, overdue taxes, et cetera. However, most commonly, the foreclosure process involves the bank or other creditor either selling or repossessing the house after the owner has failed to comply with the agreement. At the conclusion of the process, the lender will be able to sell the property and keep the profits to pay off the mortgage as well as any legal costs. If selling the house does not give the lender enough money to pay off the existing balance of principal and fees, the lender will be able to file a claim for a deficiency judgment. If you need legal assistance you can also find additional legal aid here and you can search for a lawyer here.

2. Notice of Default

In a foreclosure, the first step is a Notice of Default. This is a notice to the borrower of the loan with the house as security under a deed of trust that he or she is overdue on the payments. The amount that is owed, in addition to the costs of preparing the legal papers, needs to be paid within a certain time. If the payments are not made in full, the lender will have the legal right to enter foreclosure proceedings against the property.

3. Reinstatement Period

When you are first served with a Notice of Default, the goal is actually to get yourself into a reinstatement period; if you are able to make the payments that are requested in the desired time frame, you will not have to give up your home. Depending on the state in which you live, the foreclosure process can take up to a year. The first thing you should do when you receive the initial notice is to try to come to an agreement with the bank. If you are able to pay the balance that they are asking within the time period that they specify, your home will be out of foreclosure.

4. Notice of Sale

This is the document that will be received by the homeowner in the case where he or she is not able to make the requisite payments in the time frame that is specified by the lender. It is similar to the initial notice that is received, except it is more final because it tells the homeowner that the lender is now starting foreclosure proceedings. The goal of most homeowners is to make the loan current before this ends up happening, so that they are able to keep their homes.

5. Trustee Sale

Once the homeowner receives notification that foreclosure will be beginning, the trustee sale is a possibility. This is a publicly held auction where other people will be able to bid on your house. These are conducted in situations where homeowners are overdue on their payments for 60 days or more. It is also possible for a taxing authority to put a home into this status if the owner owes back taxes on the property. However, in the most common situation, the lender is the one who does this and will beforehand send a letter that tells them that this event will be occurring in 21 days.

6. Short Sale Is Better Than Foreclosure

Many people opt to put their homes into this status rather than foreclosure. This actually creates a better situation than a foreclosure for both the homeowner and the lender. If your home goes into foreclosure, this could put a mark on your credit that makes it very difficult for you to be able to purchase another home. It also makes the property value go down, so that the bank makes less money on the home. For these reasons, the alternative, where the bank will allow the homeowner to sell the house for less than what is owed and recoup the proceeds, can be considered a more desirable situation.

7. Understand Your Mortgage

Very few people have enough money that they are able to purchase a home in one lump sum. For this reason, they utilize mortgages. Basically, this is a where the house plays the role of collateral. The bank or other mortgage lender will loan the homeowner a large amount of money, which is usually about 80% of the price of the home, which the homeowner needs to pay back with interest over a predetermined period of time. If the homeowner fails to make the requisite payments, this is when the lender will be able to take the home back through foreclosure. If legal help is necessary, you can also find additional legal aid here and you can search for a lawyer here.