Wednesday, February 13, 2008

Describing The Foreclosure Process

Basic Foreclosure Process Explained

Foreclosure is a process of legal action taken by a lien holder or mortgage holder, as set forth by state and local laws and a contractual obligation. This obligation is spelled out in a mortgage contract or trust deed.

The foreclosure action, pre-arranged in the contract, is taken when the terms of the contract are not met. It almost always means that the payments on the loan have not been made. The loan which was used to buy real estate is not being paid back and is

considered in default. "Default" being the non-performance of a contractual or other obligation such as not making payments on a note.

The contract (mortgage or trust deed) states that if the loan is not paid according to the agreement the one granting the loan is entitled to gain possession of the property in order to retrieve the money they lent for that property.

The ultimate goal of the foreclosing lender is to end the rights of possession of the property owner. Foreclosure then, is a process whereby the lender takes a property back from the borrower who's loan is in default and then sells the property to pay off the loan.

Sounds complicated? Not really.

A simple analogy is that of repossession. Example: When you buy a new car, most likely you will need an auto loan. The loan may come from your bank, credit union or even the bank or lending institution the auto dealership works with. In most states you get to

drive the car off the lot, registered in your name and the name of the lender of the loan. Likewise, the title to the vehicle is in both names and held by the lender. When you payoff the loan, the title is sent to you, with only your name on it. You drive the car clean it repair and maintain it but it isn't your until the loan is paid off.

Try not making your auto payments for three or four months and watch what happens. Most likely you will receive a series of letters from the lender, progressively getting a little more unfriendly. The lender may call to try to resolve the matter of late payments.

Whether or not satisfactory arrangements are made make no mistake about it you are in default of your contractual obligation to make the timely loan payments stipulated in the loan agreement.

If the contract is not adhered to, the lender has the right to protect his interest in the agreement. The lender's exposure is secured by your signature on a promissory note and by the vehicle itself.

According to most contracts or agreements of this nature, the lender will have the right to and may choose to accelerate the loan thereby making the full amount of the principal portion due and payable immediately not just the portions or payments in arrears.

Acceleration, commonly known as "calling in the note or loan", is done so that the lender can avoid having to chase a borrower through cycles of being behind in payments and playing catch-up.

Most lenders will work with you when you get behind in your regularly scheduled payments. If you fall behind enough show no ability to get caught-up in a reasonable length of time or are just generally uncooperative with the lender the lender will most likely accelerate the loan.

Banks and other lending institutions are not in the automobile business. Banks only male money on the interest they charge. If the loan is not performing, the lender is not profiting on its investment. Its profits come from the interest you pay on the loan.

All banks are regulated. That means that they have to perform within very specific guidelines and the laws of the land. The banks us our money to loan other's money and to invest. If the return (the interest) on the investment or loan the bank makes is not enough to cover its expenses and make a reasonable profit, then the bank is not running profitably. Who then, in their right mind, would want to deposit their hard earned dollars in a business or bank in this case that was not running profitably?

Banking regulations are supposed to protect the consumer from fraud misuse and misappropriation of the monies the consumer entrusts the bank with.

Following is an example of the acceleration process.

Let's say that you bought $12,000 car. You put $2,000 down and you borrowed $10,000 at 9.50% interest for 36 months. Your monthly payments would be $320.33. If you make no payments what-so-ever, the scenario would look like this:

30 Days You Owe 320.33

60 Days You Owe 640.66 plus late fees for 1 month

90 Days You Owe 960.99 plus late fees for 2 months

91 Days You Owe 10,000 plus late fees, interest and collection expenses

If suitable arrangements can not be made the lender will "call in the loan," thereby making the full amount of the original $10,000 loan due and payable immediately. (plus interest, late fees and other expenses associated with trying to collect on the loan)

While all contracts and loan agreements vary, typically, 90 days is all you get.

If you still can not make satisfactory arrangements remove your personal possessions from the vehicle because the truck with the 'hook' on the back will surely come.

Copyright © The Real Estate Library 1994-2004
Copyright © 2004 Federal Homes


2008 Magic Mortgage Foreclosures All rights reserved.