For most of us, bank foreclosures are not an overly pleasant subject to discuss. Yet, people need to know what they are and how they work. Understanding the "rules" always helps people to play the game properly and win whenever possible.
In every mortgage note language are the rights of the lender in the event the borrower fails to fulfil agreements regarding repayment, property maintenance and insurance coverage. Should the borrower fail to uphold any of these promises, the lender has the right to protect its loan and the property. Foreclosure is the most drastic option available to the bank or other lender. It means the lender has the right to take both possession and ownership of the real estate. The institution then may sell the property to whomever it desires to generate funds to pay off the outstanding loan balance.
Foreclosure cannot be carried out on a bank's whim or in the event of a borrower's minor financial problem. A late payment or a brief lapse in insurance coverage (followed by a policy renewal) will not trigger a foreclosure action. However, a serious delinquency (3 to 6 months), a cancelled homeowner's insurance policy, or obvious evidence of abuse of the property, may result in a bank foreclosure. This features a specified legal process the lender follows to properly transfer ownership to the bank or another party which causes the borrower (and, now former owner) to lose title to the real estate.
Borrowers must take all actions to prevent the foreclosure from even beginning. There are many costs and expenses that start as soon as the process begins. Even if borrowers are able to correct their mortgage loan status before the foreclosure is accomplished, they are liable to pay these costs. Expenses include legal fees, costs to advertise the property for foreclosure, hiring an auctioneer, and various postage expenses to notify the borrower of the foreclosure.
The obvious method of prevention is to make mortgage payments on time and as agreed. When things happen that make this impossible, borrowers should try to take other action to prevent their home from becoming the subject of foreclosure. Options often available to borrowers include loan modification (changing terms temporarily to help borrowers make payments), refinance with another lender, and sale of the property. All of these will prevent bank foreclosures.
Statistics show that most borrowers should consider all the terms and ramifications of mortgage loans BEFORE they commit to buy a property and sign documents. The most important consideration is always whether the borrower can afford the house they want to buy and the mortgage terms they need to complete the purchase. The question of affordability is typically more important three, five or seven years from the purchase date. The job and income security of borrowers usually determine the future affordability of the home and mortgage. Bank foreclosures, involving auctions of property and people losing their homes, are expensive in dollars to the bank and in lifestyle and emotional stress to borrowers.
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