Foreclosure Process and the Options

The foreclosure process is not pleasant for the lender or the borrower. Borrowers need to know how the process works to either avoid this situation or make the most of their options.

Function

Foreclosure is the option lenders hate to use, but will when necessary. The process involves a lender properly and legally notifying a borrower that the terms of a mortgage loan have been violated and that lender remedies will be exercised. The bottom line: The lender will take action to either own or sell the property to generate the funds to pay off the mortgage loan secured by the real estate.

Time Frame

The foreclosure process gives borrowers time to "cure" the problem. This time should be used wisely and effectively. Options include making restitution to bring the mortgage loan up to date, giving the lender a "deed in lieu of foreclosure" and executing a loan modification agreement with the lender. Foreclosure, in most states in the U.S., takes time, giving the borrower options to correct the loan deficiencies generating the problem.

Legal Process

The foreclosure process is predominantly a legal exercise in its purest form. Depending on the state where the property is located, the process may vary. Most states mandate that lenders properly notify borrowers of the impending foreclosure and clearly specify the remedies available to borrowers to correct the deficiencies. These legal processes include using registered mail, newspaper advertisements and telephone communications to advise borrowers of their loan default and the fact that their lenders are going to foreclose to recover the property secured in the note.

Prevention/Solution

Prevention is always the best option. When borrowers have cash flow problems that prevent timely mortgage payments, they should immediately contact their lenders and explain. Open communication is a wonderful "prevention prescription." If the process has already begun, initiate the delayed communication right away. Solutions include refinancing the current mortgage loan, if possible, selling the property or offering a "deed in lieu of foreclosure." Providing a deed in lieu of foreclosure still results in borrowers losing properties, but they save thousands of dollars in fees and help their credit reports.

Effects

The foreclosure process is expensive for the lender holding the defaulted mortgage loan and for the homeowner faced with losing the home. While the process varies by state, foreclosure activities typically involve formal registered mail notifications, advertising in local newspapers, hours of legal time and a public auction of the property. In recessionary periods, there are more foreclosures than usual and market prices of all homes often become lower. Borrower/lender communication can often help avoid the foreclosure process altogether. Borrower options can be negotiated for a better result than the loss of a home, which will please the lender as much as the homeowner.

Resources

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