What are Real Estate Foreclosures?
When a person borrows money from a bank or other lender to purchase a piece of property, he or she must promise the property as collateral on the loan. A foreclosure occurs when a bank or other secured creditor sells or repossesses a piece of real estate property because of the owner’s negligence of those bank payments. Essentially, a foreclosure is the legal action the bank or lender takes to force the owner to make payments or lose the house in a public auction.
When a loan is sought for the purpose of purchasing real property- either undeveloped land or a home, either for investment purposes or as a principle dwelling – security for repayment of the loan takes the form of a legal document known as a mortgage.
In order to obtain a mortgage, the prospective buyer must come up with the amount
of money required by the seller for a down payment on the property. The buyer must have appropriate credit to qualify for a mortgage and must fill out a number
of documents in an attempt to prove that he or she is credit-worthy. When the buyer is approved and a mortgage is granted, the buyer agrees to pay a specific
monthly mortgage payment to the lender – usually a bank but sometimes an individual seller.
The buyer must make the mortgage payment on or before a specific date each month. If three consecutive mortgage payments are not made, foreclosure proceedings are usually instituted by the lender. There are several reasons why the buyer may be unable to meet his mortgage obligations such as job loss, credit problems or unexpected medical expenses.
The mortgage or lien guarantees by law that if a borrower is unable or unwilling to meet his obligation of loan repayment, the lender is legally entitled to reclaim the property. The legal term for this reclaiming procedure is called a real estate foreclosure.
Foreclosure is initiated by a court action and usually means that the property will be sold. In the case of an individual lien holder, as opposed to a lending agency such as a bank in most cases, the individual will either sell or reclaim the property.
To begin foreclosure proceedings, the lien holder must petition the court to disallow the borrower’s right to possess the property. A Judicial procedure follows in which the court requires the lenders to prove default – meaning lack of payment of the mortgage. If default can be proven, the court will begin foreclosure proceedings.
An exception to this rule exists in some states which use Deeds of Trust instead of mortgages. Foreclosure in those states do not require a court filing.
Foreclosure information
In all cases, the buyer is given a limited period of time in which to cure or satisfy the default – which means to make the necessary mortgage payments which are in arrears. If the buyer can make payments for the unpaid amount, he or she can then stop the foreclosure proceedings. If the buyer is unable to satisfy the default or sell the property prior to final foreclosure, the property then reverts to the lender.
Some buyers have been known to make no effort to make their mortgage payments and are said to “walk away” from the property. The consequences are that they lose the down payment and credit for all mortgage payments made in a timely manner. In addition, the foreclosure is listed on all credit reports and of course, has a negative effect on any possible future requests for credit.
If the property has been insured by a Federal Agency such as HUD, Fannie Mae or the Veterans Administration, these agencies will reimburse the lenders and will take ownership of the property, which will then be sold at auction.
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