Consumer Real Estate Foreclosure

Foreclosure is the legal recourse a lender initiates to recover an unpaid balance on a home mortgage and other costs incidental to the foreclosure if there is a failure to make payment on the mortgage when it is due (default).

Foreclosure Law Suits

Home mortgages are "secured loans" where the home is pledged with a lender/mortgagee as collateral for the loan thus creating a secured lien/first charge on the property. After a certain period of default, which varies with lenders and states, the lender initiates steps for foreclosure. Foreclosure typically begins with a written notice of default sent to the borrower/mortgagor by certified mail.

In mortgage deeds where the lender retains the right to sell the mortgaged property in order to recover the money due in case of continuing default, the lender can elect to proceed with such non-judicial foreclosure by following the procedures spelled in the mortgage deed and sell the property without a court order. Similarly, in a deed of trust where the borrower transfers title to a third party trustee to hold as security for the lender, the trustee can sell the property and pay the lender the mortgage debt.

Lenders can also elect to pursue a judicial foreclosure by filing a law suit to obtain a court order to sell the property to recover the money due.

State laws vary greatly, but the foreclosure process generally involves:

• The lender giving you a written notice of default, which will likely come by certified mail
• Your being given a period of time after proper notice pay the lender the amount required to cure the default and to reinstate your loan
• The lender electing to proceed with foreclosure under available remedies
• After the required time has elapsed, your being given a notice of foreclosure sale
• A public sale being held by auction where the highest bidder can buy your property
• If no one bids enough, the lender itself buying the property by submitting a credit bid based on the amount you own on your mortgage
• If the lender ends up with the property, it being sold by private sale at a later date
• If you have not vacated the property by the time of the foreclosure sale, an unlawful detainer lawsuit being filed to evict you

It is important to remember that the borrower is in the position to keep the property if the loan and foreclosure costs are paid off anytime during the foreclosure proceedings.

Additionally, for any shortfall in the money recovered by a foreclosure sale, the lender can also proceed against the borrower for a deficient judgment. These situations can seriously affect the borrower's credit history/rating and impairs the ability to qualify for credit in the future.

Work with Your Lender

Working with the lender before the situations evolves may help the borrower avoid foreclosure. Explaining situations, providing financial information, non-abandonment of the property, credit counseling, etc. are all steps in that direction.

Apart from bringing mortgage payment(s) current and curing the default, reorganizing finances and negotiating with lenders can provide a few options including:

• A soft second loan, which is a second mortgage whose payment is forgiven or deferred until resale of the property
• Pre-foreclosure sale, which will allow sale of the property and pay off the mortgage loan
• Deed-in-lieu of foreclosure, which transfers title from borrower to lender to satisfy the mortgage debt ("voluntary conveyance")
• Special forbearance, which can help meet a new repayment plan by providing a temporary reduction or suspension of payment
• Mortgage modification, which refinances the debt and/or extends the term and reduces the interest rate of the mortgage loan to bring payments to a more affordable level to the borrower
• Partial claim payment paid to the lender, which brings the mortgage current with special assistance from the United States Department of Housing and Urban Development (HUD) by way of an interest free loan upon execution of a promissory note and subordinate charge over the property

At the time of reorganizing finances and mortgage, care must be taken to not sign papers that are not clearly understood. A borrower should get agreed terms reduced to writing and be alert to scam artists and sham agencies offering help.

Filing Bankruptcy

Any attempt to stop a foreclosure temporarily by filing for bankruptcy, which imposes an automatic stay that prevents a lender from proceeding further without permission from the bankruptcy court, can turn futile as courts in all states give lenders many rights when it comes to protecting their security interest.

Related Resources on lawyers.com

- Foreclosure articles and information
- Real Estate articles and information
- Bankruptcy or Real Estate message boards for more help

Web Links

- HUD Foreclosure