Foreclosures - Understand Your Options

Foreclosures

Many people have encountered foreclosures, and lost their homes. It is important to have primary residence but because of certain financial constraints, which can eventually lead to foreclosed properties.

What is a foreclosure? This is a legal process that involves the borrower and lender. In this particular situation, the borrower has stopped the monthly payments. In order for the lender to recover the loan balance, the latter forces the sale of the asset that is used as collateral by the borrower. A good example is an unpaid mortgage loan. The collateral used is usually the home. The lender aims to terminate the right of redemption of the borrower through law operation or court order.

The good news is that borrowers can avoid foreclosures, as long as they know the options that are available to them. However, before you take any legal step, you should know what type of foreclosure you're dealing with. The first two are being followed in the United States - power of sale and judicial sale.

In a judicial sale, the court supervises the process of foreclosure. The proceeds of the sale will cover the mortgage loan balance and lien holders. The borrower may get the remainder of the proceeds, if there is any. A lawsuit is filed by the lender and all parties are notified. The hearing is usually short, and the court immediately issues a decision.

The power of sale is considered non-judicial. This type of foreclosure is usually cheaper and faster, but it can only be done if the mortgage includes the power of sale clause. This is very common in California and is usually called deeds of trust instead of mortgage.

Another type is called strict foreclosure. The lender will file a lawsuit against the mortgagor. The borrower will be given a chance to settle the debt for a certain period, and if he/she fails, the property's title will be given to the lender. The lender will now have the option to sell or hold the title. This type is available to lenders if the property is underwater or if the debt owed is larger than the actual value of the property.

Foreclosures tend to vary among states or countries. This is because laws may vary as well. If you don't want to have your property foreclosed, you can also go for other alternatives like a short sale or a loan modification. Others may also file for bankruptcy. Borrowers must act immediately especially if they missed out on their monthly payments. They shouldn't wait until the lenders send them the "Notice of Sale." Things can get complicated when the courts are involved especially when the final judgment is given.

If the courts favor the lender, an auction of the property will be held by an officer in court or the county sheriff. This is necessary because in some cases, the value of the property exceeds the amount of outstanding debts to the lender.

For those individuals with properties subject to foreclosures, you can reduce credit hit by knowing the options that are available to borrowers. Be responsible enough to handle your finances, and you can avoid problems with lenders.

I cover nine secrets you need to know to save your home or credit through "The Book on Foreclosures." It's foreword by Raymond Aaron - New York Times Bestselling Author.