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Foreclosure
With the record number of foreclosures taking place this year, we might as
well go back to the basics and explain what a foreclosure is, how it happens
and a little more information about it. Hopefully, we never end up in the
situation where our home is ever foreclosed upon but if we do, the more we
understand about what a foreclosure is,
how to stop a foreclosure, how to prevent
foreclosures from happening, and what choices we have, the better off we
will be.
A legal process in which mortgaged property is sold to pay the loan of the defaulting borrower.
A foreclosure on your credit history does not have to stop you from getting the financing you seek. There are still investors in the non-conforming arena that will consider doing a new purchase or refinance (called a foreclosure bail-out loan) even one day out of foreclosure (or in foreclosure proceedings in the case of a refinance). You will have to keep in mind that these types of lenders will charge higher interest rates and fees, as well as expect there to be generally at least 30% equity in the home depending how your credit history works out. Before a Foreclosure proceeding, a Notice of Default (NOD) must be sent out to the homeowner. It notifies the homeowner that unless back payments are brought current within a time frame (at least 30 days), the bank would initiate a Foreclosure process.
Foreclosure begins with the filing of the Notice of Trustee Sale (NTS), which states when and where the property is to be sold. By law, the foreclosure sale must be advertised on newspapers several times before the scheduled sale. The NTS is sent to the homeowner, alerting him that the property is now in foreclosure. The NTS also itemizes the amount owed, plus attorney fees and other charges. Foreclosure is legal procedure whereby property used as security for a debt is sold to satisfy the debt in the event of default in payment of the mortgage note or default of other terms and conditions in the mortgage contract. The foreclosure procedure brings the rights and obligations of all parties to a fianal conclusion and passes the title in the mortgaged property to either the holder of the mortgage or a third party who has the option to purchase the property at the foreclosure sale. At this point the property is free of all the past encumbrances affecting the property subsequent to the mortgage. When a Notice of Foreclosure is served, a homeowner has basically three options.
Bankruptcy- Filing bankruptcy delays the mortgage repayment. It does not eliminate the debt. Therefore, it is only a temporary measure.
Sell the property- While selling the home and pay off the mortgage effectively eliminates the debt, in a soft real estate market, the homeowner may have to sell the property at a distressed price to keep within the timeframe of the foreclosure proceeding.
Refinance- The homeowner can also refinance and pay off the current mortgage. As long as the homeowner has enough equity built in the home, many lenders are willing to finance the property to help the owner out of foreclosure.
The last two methods would save the homeowner’s credit ratings. After the homeowner has a chance to attend to his financial matters, he can purchase another home when he feels ready.
Many lenders will count 120 day lates on your credit a foreclosure, even if a NOD was never received. Depending on the state the property is in and thereby the types of security instruments, Mortgage or Deeds of Trusts, the lender may or may not have to go to court to foreclose upon the property. In state where trust deeds are used, because titles to properties are held by the lenders, lenders do not have to go through court proceedings to foreclose on properties. In states where mortgages are used as security instruments, banks must go through court proceedings. When you are 90 days late the lender will file a notice of default onto the title of your house to start the foreclosure
proceedings on your house. At this time you have a short amount of time to bring your mortgage current on all the late payments otherwise your house will be sold. The foreclosure process is not immediate. If your house is in foreclosure, you do have options. Call us today for free information. Normally when a home goes into foreclosure there are many legal fees that are associated. Keep this in mind if you plan to try and sell the home or if you try to refinance out of the foreclosure. You should obtain a payoff statement to check and see how much is owed to payoff the mortgage completely. A legal process to enforce a lien, by the selling of property, to satisfy the debt.
It is important to know that foreclosure is not automatic. Due to the high cost of foreclosure to lenders some of them will try to work with you to find other options especially if they feel you can provide a valid solution to the problem. This will usually happen when you are three or more months late on your mortgage The most important part of having a home in foreclosure is to do something, anything. Sitting still will not make the problem go away. Call your lender and speak with their homeowner's assistance department. This will at least give you the chance to save your home. Many times you will be surprised by what the lender is willing to do. A borrower facing foreclosure may seek a foreclosure bailout. This is a loan from a lender that specializes in stopping the foreclosure process. These loans can be expensive, with a rate of 11.99 to 13.99% and two or three points in origination fees. The foreclosure bailout will allow the borrower to rebuild their credit history, and refinance in the future at a much lower rate. An increasing cause of foreclosure is the violation of the due on sale clause. This results from selling the property and not having the lender’s approval to do so. For example if you did a contract for deed and did not get approval from the lender. Foreclosures in this case is rare but investors that do a lot of these types of transactions are running into this. Also a lease option is considered a sale. Not only does your mortgage company holding the note on your property have the right to foreclose but also your taxing authority may do the same. If you do not pay your proeprty taxes then the taxing authority can foreclose. If this happens there is usually a redemption period which allows your to pay the debt along with fees and interest. Different states will have different methods for this process. One way is to sell what they call a tax certificate then after a set time period the investor who bought the certificate will get the deed to the property. The other way is where the investor acquires the deed at the auction but will not be able to sell the property until after the redemption period. There are different options to get out of foreclosure. Refinance your mortgage or a lease buyback program. Typically you will need at least 25% equity to refinance out of foreclosure and sometimes more depending on your credit scores. Or a private investor can buy your home from you and lease it back to you for a set period of time. In that time you are to get your credit to the point where you can purchase the home back from the investor. If for any reason you are having difficulties or problems making your monthly mortgage payments, call, write or otherwise contact your mortgage company as soon as possible. Your lender wants to helpyou avoid foreclosure, soexplain your situation clearly and honestly. Have your key and actual financial information ready, such as your income and exenses as well, as this information may benecessary for the lender to offer you assitance. When faced with letters from your lender, it is important not to ignore letters notifying you of late payments, default, or otherwise describing delinquency on your mortgage payments.
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Information listed above is to be used for educational purposes only and is not guaranteed
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