Homes & Land Foreclosures
Buying a home is typically the largest purchase the average American will make in his lifetime. Because homes are costly, the average American must also take out a mortgage loan to finance the purchase. Banks, mortgage companies and other lenders offer mortgage loans to qualifying borrowers. These qualifications include the borrower's credit rating and income, as well as the value of the property involved. If the borrower fails to meet the terms of repayment, the bank can repossess the property and sell it for profit through the foreclosure process.
Other People Are Reading
-
Mortgage Loans
-
Before the bank will approve and fund a mortgage loan, the borrowers must go through the application process. During this process the applicants disclose information regarding their income, assets owned, other debt and credit rating. Additionally, the lender will usually require an appraisal and inspection of the property to be completed so that it will know how much the home is worth. If all of the criteria meet expectations, the loan will be approved. Once approved, the borrowers must go through the closing process. When the loan "closes," a lot of documentation must be signed. Most importantly to the lender and borrowers is the promissory note and security instrument. The promissory note states the amount of money borrowed, the repayment term length and usually the amount of monthly payments. By signing the promissory note, the borrowers "promise" to repay the lender.
Security Instrument
-
In addition to the promissory note, the lender will also require the borrowers to sign a security instrument. Depending on the state in which the property is located, the instrument may be called a mortgage or a deed of trust. The lender uses these to secure its interest in the loan. Each document functions in essentially the same way, disclosing that the borrower cannot hold a free and clear property title until the loan is paid in full. They both also state the explicit terms of the loan, resembling a contract. Additionally, the documents state what the lender's rights are if a default occurs. For mortgage loans, the lender must usually file a lawsuit against the borrowers before it can begin the foreclosure process after a default, whereas most deeds of trust contain a clause stating that the lender can proceed with foreclosure outside of court.
-
Features
-
The foreclosure process varies among individual states. Overall, judicial foreclosures take longer to complete than nonjudicial foreclosures. The lender is generally required to notify the borrower at certain times during the process -- often at the beginning and before the foreclosure sale. These notices are known as the notice of default and notice of sale, respectively. The borrower has the chance to stop the pending foreclosure sale at many points during the process by paying the lender the amount requested or owed. The terms of this vary by state also. If the sale occurs, it will be conducted as an auction. The highest bidder gains ownership of the property.
Options
-
Borrowers facing foreclosure should investigate their options to avoid it. Foreclosure has negative affects to your credit score, lasting up to seven years. First, try to talk to your bank or lender to renegotiate the terms of the loan. A loan modification program may be available for those borrowers experiencing financial hardship. Additionally, filing for bankruptcy may be another option. Chapter 13 bankruptcy for individuals will help people in debt to repay creditors while freezing their credit rating and stopping harassing collection calls. Loan modification programs and bankruptcy will allow the borrowers to remain in the home. If the borrowers are willing to loose the home and land, they can opt for a deed-in-lieu of foreclosure or short sale. With a deed-in-lieu, the borrowers willingly sign a deed granting ownership of the property to the bank. A short sale can occur if a buyer is willing to purchase the home at a discounted rate approved by the bank. While these options will damage credit and cost the borrowers their home, they may be a better choice instead of the foreclosure. Consult an attorney or certified credit counselor before making any decisions concerning home and land foreclosure.
-
