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Home Foreclosure

HandelontheLaw.com Staff Writer

Monday, December 16, 2013



Home Foreclosure
Home Foreclosure

“Home Foreclosure,” the loss of one’s residence through forced sale, has been an economic reality since the invention of home mortgages and deeds of trust. During the 5+ year economic crisis, there have been literally millions of U. S. home foreclosures. If you are currently in danger of home foreclosure, you have a lot of good company and the more you know about the basics of home foreclosure, the better. Home foreclosure is normally started by the holder of a home’s mortgage/deed of trust (for example, the lender bank), usually after the borrower (you, for example) has somehow defaulted on the terms of the mortgage/deed of trust. As you might guess, the default frequently involves the failure to make payments when they are due, though default can occur in other ways such as failing to keep the property adequately insured.

There are 2 basic types of home foreclosure, though several states have additional methods. Those two basic types are “Judicial Foreclosure” and “Nonjudicial Foreclosure.” Judicial Foreclosure occurs when: the mortgage/deed of trust holder notifies the borrower(s) in writing through a “Notice of Default” that the borrower has defaulted, the loan is typically “accelerated” and all sums are declared to be due by a certain date; the borrower does not pay all the accelerated sums allegedly due; an action is brought in court by the mortgage/deed of trust holder; the borrower’s default is proven; the property is sold under court supervision; the sale proceeds are applied first to satisfy the mortgage/deed of trust balance and related costs, then to satisfy the holders of other liens on the property, then to the borrower. Unfortunately, the sale proceeds are usually too low to satisfy the mortgage/deed of trust balance and related costs, let alone to pay other liens and provide any remaining money to the borrower.

Nonjudicial Foreclosure, which is allowed in many states, occurs when: the mortgage/deed of trust holder notifies the borrower(s) in writing through a “Notice of Default” that the borrower has defaulted, the loan is typically “accelerated” and all sums are declared to be due by a certain date; the borrower does not pay all the accelerated sums allegedly due; the mortgage/deed of trust contains a clause giving “power of sale” to the lender; the borrower defaults – usually by nonpayment of amounts due; the mortgage/deed of trust holder sells the property without court supervision; the sale proceeds are applied first to satisfy the mortgage/deed of trust balance and related costs, then to satisfy the holders of other liens on the property, then to the borrower. Again, the sale proceeds are often too little to cover the mortgage/deed of trust balance and related costs, let alone anyone else. Due to the freedom from court actions and court supervision, nonjudicial foreclosures are typically faster and less expensive.

A few states, such as Vermont, New Hampshire and Connecticut, also allow “Strict Foreclosure.” Strict Foreclosure, typically available when the mortgage/deed of trust debt is higher than the property value, occurs when: a court action is brought by the mortgage/deed of trust holder; the borrower’s default is proven; the borrower is given a set period of time to pay the mortgage; if the mortgage is not paid within that set period of time, the mortgage/deed of trust holder obtains title to the property without selling it.

Holders of mortgages/deeds of trust typically do not want the property; they usually want money. That tendency combined with the sheer numbers of defaulting American borrowers led to alternatives. The current alternatives to home foreclosure include but are not limited to: a temporary agreement between the lender and the borrower; refinancing or alternative financing; the short sale; and bankruptcy. A temporary agreement between the lender and the borrower usually involves a borrower who cannot make the required payments due to some temporary hardship. Here, a lender may agree to a temporary written agreement (often called “forbearance”) whereby the borrower pays a portion of the payments or no payments at all for a set period of time, ideally until the borrower gets back on his financial feet. Refinancing or Alternate Financing involves an agreement that normally takes the form of a “Repayment Plan” or “Loan Modification.” In a Repayment Plan, the lender and borrower agree in writing that the borrower will make each payment due plus a portion of past due payments until the loan is made current again. Loan Modification is a written agreement between the lender and the borrower that includes such terms as: temporarily or permanently reducing and/or fixing the loan’s interest rate; extending the loan’s time for repayment; extending the time for paying past due amounts; forgiving a portion of the debt, either conditionally or outright. A Short Sale, usually used when the debt is greater than the actual market value of the home, involves a written agreement between the lender and the borrower whereby the lender accepts an amount that is less than the debt in order to allow the sale of the property at actual market value. Here, the borrower is empowered to sell the property, which he/she could not otherwise do with a mortgage lien that’s higher than the property’s worth, while the lender recoups at least some of the money owed. Bankruptcy, depending on the Chapter under which the petition is filed, may allow the borrower to keep his/her home. Most petitions for relief in Bankruptcy are filed under Chapter 7 or Chapter 13. Chapter 7 Bankruptcy, also called “Liquidation” or “Straight Bankruptcy,” might not preserve the home for the borrower because Chapter 7 chiefly frees the debtor from the burden of unsecured loans while a mortgage/deed of trust is a secured loan. Consequently, Chapter 7 Bankruptcy delays but does not usually prevent the consequences of default. Chapter 13 Bankruptcy, however, involves a repayment plan approved by the court, administered by a trustee, and frequently saving the borrower’s home. As you can see from the number of available options, mortgage/deed of trust default does not necessarily mean loss of the home. In most cases, it helps to have a lawyer who specializes in Home Foreclosures because he/she will know how to assess your situation and pursue one or more options for you.


DO’S AND DON’TS

DON’T be intimidated by the process or the people.

If you cannot make your timely mortgage payments, DO hire a lawyer who specializes in home foreclosure and, with his/her assistance, consider the options of:
a. “Walking away” and allowing the home foreclosure;
b. Fashioning a temporary agreement with your lender;
c. Refinancing or alternative financing;
d. A short sale;
e. Bankruptcy.


By Kathy Catanzarite


[Note from HandelontheLaw.com: This article is to be used as an educational guide only and should not be interpreted as a legal consultation. Readers of this article are advised to seek an attorney if a legal consultation is needed. Laws may vary by state and are subject to change, thus the accuracy of this information cannot be guaranteed. Readers act on this information solely at their own risk. Neither HandelontheLaw.com, or any of its affiliates, shall have any liability stemming from this article.]


Source: Kathy Catanzarite - Handelonthelaw.com Staff Writer

Note from HandelontheLaw.com: This article is to be used as an educational guide only and should not be interpreted as a legal consultation. Readers of this article are advised to seek an attorney if a legal consultation is needed. Laws may vary by state and are subject to change, thus the accuracy of this information can not be guaranteed. Readers act on this information solely at their own risk. Neither the author, handelonthelaw.com, or any of its affiliates shall have any liability stemming from this article.





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