Foreclosure loan
If the borrower of a home loan becomes delinquent in paying loan installments, the lender has the right to foreclose the loan, by selling the property in a manner prescribed by law. This is lender?s right of Foreclosure.
Legal aspects governing foreclosure: The lenders right is derived under state laws which can vary considerably. The loan agreements are drawn up in this legal backdrop. Some states such as Wyoming, vest ?power of sale? in the lenders, while some states such as California do not. In the absence of a ?power of sale?, the lenders should invariably file a suit against the borrower to be adjudicated a defaulter, whereupon the lender acquires the ?decree of foreclosure? and an ?order for sale?. This is called ?judicial foreclosure?. If the state laws give an inherent ?power of sale? to the lender, then such a foreclosure becomes ?non judicial?, i.e. without the intervention of the court.
If in spite of such foreclosure, there is a deficiency in loan amount, the lender can pursue ?deficiency judgment? individually against the borrower. Again, a deficiency adjudication is possible, only in cases of judicial foreclosure, since fairness is presumed in the decreed amount.
Time line for complying with due process of law .
Once the loan slips into delinquency, under California state laws, the lender should give notice in writing within 10 days of delinquency, to the borrower, giving him a time to cure the default within 90 days. If the borrower does not pay up, a notice to auction the property within 21 days is recorded in the County Sheriff?s office. A notice is served on the borrower by certified mail with receipt requested. At the expiry of 21 days the property is sold at the prescribed place. The due process of law can be satisfied within 121 days if foreclosure is to take place under California state laws. This timeline may vary from state to state. In Wyoming for instance, the timeline is shorter at 90 days. Some states provide the lender a right to redeem property, within a given time, after adjudication but before sale taking place, while some states do not. .
Consequences of foreclosure to borrower:.
Damages credit rating and escalates credit cost: When a foreclosure takes place, the borrower ?s credit history becomes impaired for a long time to come. Lenders will not volunteer, and if lent, interest rates will be high. He would be forced to opt for security backed loans, such as automobile title loans, which are expensive, because they come without regard to credit history. Credit card dues will also attract high interest rates. Hence, in the long term, the cost of borrowings could become expensive.
Tax consequences: Yet another totally unintended consequence could be a capital gains tax arising out of profit in sale of house.
Emotional consequences:The emotional trauma of being dispossessed, could to some individuals, far outweigh the long term financial consequences.
HOW TO AVOID FORECLOSURE .
Hence, to the extent possible, borrowers should avoid foreclosure. Here are some of the ways in which a foreclosure could be avoided. The borrower in danger of foreclosure can seek any of the following foreclosure loans .
Loss mitigation: When a borrower is faced with a prospect of a foreclosure, he should apprise his financial circumstances to the loss mitigation department of the lender expeditiously. The lender would be prepared to counsel you on the best way out of the situation.
Loan Modification through Special Mortgage Forbearance Agremement: Generally, a borrower who has not defaulted more than 3 monthly installments can be accommodated under this program. Often, delinquencies arise out of unanticipated temporary setbacks such as an illness, divorce or loss of job. A lender?s Loss Mitigation Department would be prepared to recognize this. It may structure a revised repayment program by postponing sufficient installments, or extending loan maturity. Time is the essence of this program, and it should be done before credit rating slips further. This foreclosure loan program will reinstate overdue credit, extend the repayment period for the entire loan, including the overdue, and reduce the monthly installment. .
Stop foreclosure loan. .
If the slippage is upto 2 months, credit rating is not much affected and a delinquent loan can be reinstated by a loan from a new lender. This may come at a higher interest rate. But the lender would like to ensure that the property has sufficient value and income would be stable. He may provide the borrower a repayment holiday for a few months until he overcomes his temporary set back and cash flows begin to occur. This is popularly called ?stop foreclosure loan?.
Home equity loans: Some lenders, regardless of credit rating, give foreclosure loans based on the equity of the property. They will still insist on adequate loan to value and debt to income ratios.
Hard money loans: Foreclosure loans provide a good investment opportunities in US. Groups of investors or financial institutions, offer hard money loans. The investment groups are lenient on credit history, base their decisions on the value of property.
The interest rates could be high..
Private loans: These are the same as hard money loans but come from private individuals and not groups of investors. These private lenders operate beyond the pale of regulation and are not too mindful of any circumstances. Their decisions are extremely flexible having due regard to the circumstances of the borrowers. The interest rates are high.
Investor sale and lease back: .
Any time before foreclosure takes place; a borrower may find individual investors to repay the loan in consideration for acquiring title to the property. The investor may then lease back the home to the borrower giving him an option to own his home. If a borrower is able to clinch an agreement on fair terms, this is perhaps the best possible way out of foreclosure.
Foreclosure scams .
A borrower should never give up trying alternative ways of avoiding foreclosure. There are no short cuts. A large number of mortgage companies and licensed lenders can provide one or more of these alternatives. But in the process of finding one, a borrower should not fall prey to loan sharks. Foreclosure loans are a breeding ground for predatory lending. There are typical ways in which scams takes place. These have been documented by the US Department of Housing and Urban Department at its .
Equity skimming in a confidence trick in which an unscrupulous lender offers to find a buyer before foreclosure. The gullible borrower is asked to sign deeds in favor of a trust as an interim measure. While the trust enjoys the benefits of the rent, a prospective buyer is never found and the lender does not pay up the mortgage dues either. Foreclosure which was intended to be avoided under the program is eventually not avoided .
Borrower would also do well to keep away from unapproved counselors. These counselors would offer to do what the borrower himself could do, for a fee which is exorbitant. A list of government approved counselors can be had at the above url.
A borrower facing foreclosure prospects should never do any of the following:
He should not enter into binding agreements with third parties without discussing with his lawyer and understanding its consequences.
If he intends to sell his house, to prevent a foreclosure, he should enquire about the intending buyer with the State Real Estate Commission or the local State Attorney General ?s office to make sure that the intending buyer is not a habitual fraudster and he is not being investigated for any complaints.
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