By: Cristina Serra
Portillo Realty Corp.
I What is a foreclosure?
II Types of foreclosures
III Foreclosure Process
IV How to avoid a foreclosure
V How to stop foreclosure
I. What is a foreclosure?
Foreclosure is a process where a property owner
fails to make their mortgage payment, therefore
creating a delinquent loan. Once the property
becomes delinquent, the homeowner begins to
receive letters from the lender requesting payment
for the mortgage. If the homeowner does not make
an effort to make any payments within 90 days,
the lender will send them a notice in the mail
stating that their home will be sold at public
II. Types of foreclosures
Each state has its own statutes and regulations governing foreclosure, although foreclosures in practically all
states now follow the same basic formats. Nevertheless, there are different types of foreclosure formats:
Foreclosure by sale The most common type of foreclosure is the foreclosure by court sale. Upon default, the
lender files a suit for foreclosure . If the plaintiff lender (mortgagee) is successful, the court will order that the
subject property be sold at a foreclosure sale.
Power of sale foreclosure Some mortgage loans are secured with a deed of trust (sometimes called trust deed),
instead of a regular mortgage. This is an important difference, as the deed of trust normally contains a "power of
sale" provision, which allows the trustee to sell the property without having to file a suit or go to court.
Deed in lieu of foreclosure Some borrowers in default may wish to avoid the entire foreclosure process
altogether. Such borrowers may instead simply wish to surrender the property and move on with their lives as
quickly as possible. A "deed in lieu of foreclosure" would then be used to convey the property from the borrower
to the lender. In exchange, the lender will consider the loan paid in full.
Tax foreclosures Two of the basic powers that government can wield are taxation and eminent domain. Taxation
is the ability levy taxes on people and property. Eminent domain is the government's power to take property
away from private ownership. A tax foreclosure combines those two powers.
III. Foreclosure Process
Foreclosure is a long and difficult process for both lender and borrower. Most foreclosures take at least six months, while many
can take up to two years to complete. The typical foreclosure process normally goes as follows:
Delinquency The foreclosure process normally begins with a delinquency, particularly of the required loan payments
Default and acceleration The first true step in the foreclosure process is the notice of default. With that notice of default, the
lender will demand that the lender cure the default within a specified period (usually 15 to 30 days).
Foreclosure suit Most courts require the lender to attempt to negotiate a reinstatement with the borrower, before acceleration
can be validly enforced. After the acceleration demand is issued, the lender must give the borrower additional time to satisfy
the acceleration demand
Judgment and sale The lender has no choice but to wait for the court to process the case. The eventual conclusion, unless the
borrower is able to cure the default or defeat the suit, is usually a judgment for foreclosure
Deficiency judgment Lenders will occasionally accept a lower-than-desired bid and take a loss. For example, if the judgment
amount is $100,000, but the lender believes that it can only market the property for $75,000, they will accept a lower bid in
that market price area. The lender will then go after the borrower for that shortfall, by obtaining a deficiency judgment.
Statutory redemption period Many states have statutory redemption period, which give property owners the opportunity to
redeem their properties after foreclosure. The winning bidder, whether it is the lender or a foreclosure real estate investor,
must respect the borrower's statutory right of redemption. [Note that the borrower's equitable right of redemption expired with
the foreclosure judgment and sale.]
Real estate owned properties Mortgaged properties that revert back to the lender because of foreclosure (or deeds in lieu of
foreclosure) are normally called REOs, or real estate owned properties. Mortgage lenders are not in the business of owning and
managing real estate. They will try to sell them as soon as possible to convert that real estate into cash.
Eviction The highest bidder (and thus winner) of the foreclosure auction must respect any statutory rights of redemption that
the borrower may have. Once the redemption period expires, however, the new owner will move to evict the erstwhile
IV. How to avoid a foreclosure
Mortgage Modification. Your lender may be able to work with
You may be able to refinance you to obtain a one-time payment
Your lender may be able to Arrange
the debt and/or extend the from the FHA-Insurance fund to bring
a repayment plan based on
term of your mortgage loan. your mortgage current. When your
your financial situation and lender files a Partial Claim, the U.S.
This may help you catch up
may even provide for a Department of Housing and Urban
by reducing the monthly
temporary reduction or Development will pay your lender the
payments to a more
suspension of your payments amount necessary to bring
your mortgage current
Selling Your Home at market value
Deed-in-lieu of foreclosure. If catching up is not a possibility,
As a last resort, you may be able the lender may agree to put Pre-foreclosure sale.
to voluntarily "give back" your foreclosure on hold, giving you some This will allow you to avoid
property to the lender. This won't extra time to attempt to sell your home foreclosure by selling your
save your house, but it is (family sale transaction is one of the property for an amount less
not as damaging to your most common solutions and this than the amount necessary to
credit rating as a foreclosure. will involved the transfer pay off your mortgage loan.
of deed and full pay off debt)
V. How to stop foreclosure
Relief Against Foreclosure: Filing for Bankruptcy
A bankruptcy filing is a drastic step, but sometimes it is necessary to forestall a
foreclosure. Homeowners in the midst of should not consider bankruptcy until all
other avenues have been exhausted and judgment seems inevitable. Don't file for
bankruptcy if you're considering a refinance, as lenders prefer not to lend to
borrowers in the middle of bankruptcy.
Filing for bankruptcy can delay and/or suspend foreclosure procedures, but they
may not delay it permanently.
There are two bankruptcy options available to consumers.
A chapter-13 bankruptcy collects all of the consumer's assets and tries to
restructure the consumer's debt payments. The mortgage is one of the debt
payments, and the bankruptcy administrator will try to negotiate a workable
payment plan with the mortgage lender that will forestall foreclosure and may
even reinstate the loan.
A chapter-7 bankruptcy is more drastic. The bankruptcy judge or administrator
collects all of the person's available assets, liquidates them and uses the proceeds
to pay off the creditors. Most if not all consumer debt balances are then wiped
clean. Secured debts, such as car loans and mortgage loans, are treated
differently; the lenders eventually are allowed to continue with their foreclosure
or repossession efforts. Many states protect the person's home from such
bankruptcy liquidation, but they will allow the mortgage lender to continue with
the foreclosure if the borrower is unable to pay.
All across the country—in rural,
suburban and inner city areas—
more and more families are losing
According to statistics published by
foreclosures the Mortgage Bankers Association
of America, foreclosure rates are at
their highest level in 30 years. For
the three months ending May 30,
Bankrupties lenders initiated 134,885 new
mortgage foreclosures. That
represented close to 4 of every
Judgment 1,000 mortgaged homes. The
and sale number of conventional loans that
have been foreclosed has increased
0 50 100 45 percent, to 76,526, the highest
level in 11 years.
Most of all homes can be saved from foreclosure by
taking the proper action.
The property owner should seek the advice of a professional
foreclosure consultant as soon as possible. The faster the property
owner asks for help, the more options there are available, and the
homeowner will have a greater chance for success.
If is too late to solve the problem then they will have no other choice
but to sell.
Many people are starting up businesses these days on the back of the
foreclosure boom. The idea is to buy a foreclosure taking advantage
of the below-market prices and either resell at market rates, or fix
the place up and sell it in its improved state at the new market rate.
Both are lucrative businesses.