What Is Foreclosure?

When you purchase a home with the aid of a loan, you make a promise to the lender to make payments back to them. This promise is known as a 'promissory note' and the process is known as a 'mortgage'. When your property is mortgaged, the lender places a lien on your property, which is also known as a security interest. This lien is dissolved once once you pay back the loan balance. If you default on your mortgage payments, this lien can allow your lender (known as a 'mortgagor' and who is a 'creditor') to take necessary action to recoup their losses. This legal proceeding is known as foreclosure.

Foreclosure allows your creditor to legally repossess and/or sell your home Your lender is most likely a bank, however, the term generally applies to any entity that loaned money to you for the purchase of your home.

There are two different types of foreclosure: Judicial Sale and Accelerated. Judicial Sale foreclosure allows for a court to intervene and supervise the sale of the property being foreclosed on. The court will settle the foreclosure by paying off all liens on the foreclosed property to the creditors with the proceeds of the sale. Accelerated foreclosure is a concept where the lender 'accelerates' the loan terms by calling the full balance of the loan amount due and payable once the mortgage holder defaults on payments.

How Do I Avoid Foreclosure?

If you begin to default on your mortgage payments, then you should immediately call your mortgage company! Many people who miss their payments make the mistake of not calling their lender to work out a plan. Your mortgage company wants to avoid foreclosure and may be willing to work with you in the following ways:

Forbearance: Your mortgage company may allow to make smaller payments or no payments at all during this period.

Reinstatement: Your mortgage company allows you to pay the amount you owe in back payments in one lump sum by a specific date.

Repayment Plan: In this instance, your mortgage company will allow you to pay back the payments that are past due in small increments along with your current payments by a specific date.

Loan Modification: Loan Modification is an agreement between you and your mortgage company to change the terms of your mortgage to make the payments more affordable.

If none of the options will work for your situation, then you can also pursue these other options to help save your credit rating:

Loan Assumption: Allows another qualified borrower to take over or 'assume' the mortgage for you.

Short Sale: Your lender may allow for the sale of the home to be sold for less than the original loan amount. The lender will come up 'short' or lose money on this transaction. The difference of the original loan amount and the new sales price are written off.

Deed-in-lieu: When this occurs, your mortgage company will request that you transfer the title of the property to them in exchange for the cancellation of the loan.

Again, talking to your mortgage company is the most important thing when you receive an 'NOD' or Notice Of Default. Ignoring your mortgage company is the worst thing you can do.

Foreclosure News

Some recent news articles tracking foreclosures in the United States:

From Housing Haven to Foreclosure Leader (Aug. 11, 2007)

Local foreclosure rates soar past national numbers (Aug. 2, 2007)

Foreclosure numbers still rising (Aug. 2, 2007)

Tax Implications of a Deed-In-Lieu Of Foreclosure (Mar. 13, 2007)

Please contact us to submit your own link.

Resources

Freddie Mac's Avoiding Foreclosure page

HUD Foreclosure page

Partners

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