Foreclosures / Bank Owned / Real Estate Owned (REO)                            << Back

In a tough market, especially during economical down turn, many people loose their income. The biggest expense that you have is your home expense. Due to impractical lending practices by the lenders, sub prime mortgage fraud and irresponsible buyers in the early part of this decade, many people bought home for more money than what they could have afforded. Remember, the rule of thumb is that you should never go for a home that is eating up more than 35% of your total income. 

Foreclosure is to shut out, to bar, to extinguish a mortgagor's right of redeeming a mortgaged estate. It is a termination of all rights of the homeowner covered by a mortgage. Foreclosure is a process in which the estate becomes the absolute property of the lending institution.

The Foreclosure process begins when the homeowner fails to make payments of the money due on the mortgage at the appointed time. This may be due to several reasons. Unemployment, divorce, medical challenges, terms of the loan, sick of property management, and even death.

Foreclosure is applied to any method of enforcing payment of the debt secured by a mortgage, by taking and selling the estate. Borrowers and lenders now face a challenging situation. Both seek a compromise that permits a win-win outcome. The borrower to keep his home or business, the lender to keep receiving mortgage payments.

Foreclosure proceedings typically start with a formal demand for payment which is usually a letter issued from the lender. This letter of notice is referred to as a Notice of Default (NOD) or Lis Pendens. Depending on your state, the lender will issue this notice when the homeowner has been 3 months delinquent on the mortgage payments. Keep in mind that the notice is a threat to sell your property, terminate all your rights in that property and evict you from the premises.

In the event that you cannot make your mortgage payments, this security interest gives your lender the right to foreclose--auction off your house and keep the proceeds in order to recover its investment. And, if your property cannot be sold for what is owed, a deficiency judgment could be pursued against you. Both a foreclosure and a deficiency judgment could seriously affect your ability to qualify for credit in the future.

If you are facing the possibility of foreclosure, you know how frightening this situation can be. But now is not the time to panic. Now is the time to explore your options. But before we do that, take a moment to answer these questions.

• Are you unable to make your house payments because of a temporary financial setback?

• Are your mortgage payments too much for you to handle, even in good times?

If your situation is temporary, there are things you can do to ward off foreclosure and get back on your feet. On the other hand, if you're in over your head you need to acknowledge that fact and realize that giving up the house may be the best thing for you. That does not mean you should just sit back and let the foreclosure happen. But you should not try to hold on to it.

The foreclosure process can end one of four ways:

1. The borrower/owner reinstates the loan by paying off the default amount during a grace period determined by state law. This grace period is also known as pre-foreclosure.
2. The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
3. A third party buys the property at a public auction at the end of the pre-foreclosure period.
4. The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure, via a short sale foreclosure or by buying back the property at the public auction. Properties repossessed by the lender are also known as bank-owned or REO properties (Real Estate Owned by the lender).