What is Foreclosure?
Within the legal field of Property Law, Foreclosure is defined as an act of restitutionundertaken by a financial institution – ranging from mortgage lenders to banks - involving the repossession of a piece of real property as a result of the inability or unwillingness of the Principal to satisfy pre-agreed mortgage payments.
What Happens During Foreclosure?
Once the Principal of a mortgage loan – or borrower – has expressed an inability or unwillingness to satisfy mortgage payments owed; the Obligee – or lender may choose the specific action of recourse in order to avoid a financial loss. Due to the fact that each Foreclosure exists within different circumstances – as well as the variance within prearranged rates of mortgage payments – the financial institution in ownership of the mortgage loan may choose their response from a variety of options:
While stopping foreclosure will be a choice of the Obligee, it should neither be an expectation or an assumption of the Principal. The ramifications of undergoing a foreclosure can be vast, damaging, and long-lasting with regard to the individual who has defaulted on a mortgage payment; foreclosure can reside on an individual’s financial record for varying periods of time – this can create a multitude of future difficulties with regard to the individual undergoing a foreclosure receiving loans or owning property. In the event that a financial institution wishes to avoid the foreclosure process, they can participate in any of the following:
The financial institution can request ‘good faith payments’ from the individual in default; these payments can range anywhere from 25% to 50% of the total outstanding
The submission of a comprehensive personal financial statement, reflecting that individual’s income, revenue, and spending with the hopes of substantiating validity with regard to the defaulted mortgage payments
The submission of a ‘Letter of Hardship’ in order to appeal a proposed foreclosure, which must be approved by the parameters established by the United States Department of Housing and Urban Development (HUD)
Pre-foreclosure is the temporary ceasing of foreclosure, which allow an individual the opportunity to avoid foreclosure; this can involve the ‘short selling’ of the property in question to another owner with the hope on incurring revenue to substantiate the outstanding balance of the defaulted mortgage – in the event of a short sell, an individual will be responsible for repaying the difference (if in exists) of the defaulted mortgage after the payment for the sale is transferred to the owner of the defaulted mortgage loan
What Causes Foreclosure?
Foreclosure can occur for a variety of reasons, which can vary upon individual circumstances:
Bad Credit Mortgage loans awarded to individuals require prompt payment; in the event of a late payment, the real property in question can be sent into immediate foreclosure
Loss of income, employ, or funding can lead to an inability to satisfy pre-agreed mortgage payments can lead to foreclosure
A failing or poor real estate market can make short selling difficult, potentially leaving an individual successfully complete a short sell unable to satisfy the remaining difference with regard to an outstanding mortgage loan
NEXT: Foreclosure Process