Foreclosures
The number of home foreclosures in the United States is growing rapidly. The housing bubble has burst, and experts project that things may get worse before they get better. Like any other financial fact, however, one person's bad news is another's chance of a lifetime. Understanding the way that foreclosures work can help current homeowners forestall the process, while allowing potential buyers to take advantage of the sometimes significant savings involved in buying a foreclosure. The foreclosure process is extremely complicated, and anyone who becomes involved, either as the homeowner or potential buyer, should seek advice from a qualified attorney and financial professional. Provided here is a brief guide to the general issues involved in foreclosures.
Notice of Default
The notice of default is a notice that the lender intends to seize the
home for non-payment of the mortgage. Although state laws vary in
specifics, the lender must wait for a certain period of time before posting
the notice of default. The lender must then wait another period of time
before going forward with the foreclosure. State law generally allows the
homeowner to make up late payments during this time in order to prevent the
foreclosure.
Many financial experts agree that is best to work out a repayment plan before the notice of default is filed. Lenders generally prefer to avoid foreclosures, which can be costly, and may be willing to work with a delinquent borrower. Possibilities include one-time payment forgiveness, loan agreement modification or the ability to spread out a missed payment. However, once the notice of default is filed, homeowner options typically become more limited.
Short Sale
If the homeowner owes more than the home is worth, a short sale may be a
viable option. In a short sale, the lender agrees to accept less than the
total amount due on the loan. Short sales are quite complicated and should
never be undertaken without professional guidance.
Types of Foreclosure
In a strict foreclosure, ownership of the property defaults back to the
lender. There is no requirement that the home be sold, and if it is sold,
the former homeowner is not entitled to proceeds.
Other types of foreclosures require that the property be sold, often at public auction. After all debts, including the original mortgage, attorney fees, costs associated with the sale and so forth are paid, the original homeowner may be entitled to leftover funds. However, state laws vary, so it is important to involve an attorney in the relevant jurisdiction.
The Bottom Line
Foreclosures are governed by a very strict legal process, which varies
between states. Therefore, anyone who is involved in a foreclosure
situation should seek legal and financial advice from professionals in
their location. The above guide introduces some of the more common issues
that are involved in foreclosures but is by no means comprehensive, nor
should it be considered legal advice.
