Real estate properties can be acquired through a, or a written agreement between a real estate buyer and a lender, that a piece of land will serve as the collateral for getting a housing loan. The lender is generally a financing company such as a banking corporation. Such type of agreement is based on the employment of a piece of land or real estate as an assurance that the loaned money will be repaid based on the agreed terms and conditions. If the recipient of the loan is unable to keep his regular installment-based payments, the loan is thus put into default, and the lender has the authority to foreclose the real estate that was used as collateral and present this as an item for sale. This action taken by the lender is understood to be the performed in order to replace the amount of money that was expected to be paid, and also to reduce the debt of the loan holder. The lending company may also inform the loan holder to pay the amount due so that the loan may be maintained.
The mortgage loan is initiated when an applicant requests a lending company for a loan and signifies his commitment to conform to the terms and conditions of the transaction. The lending company, in turn, performs a risk evaluation of the loan applicant. This involves checking the applicant’s financial capability to provide regular installment payments for the loan. In addition, the lending company also assesses the value of the real estate that is involved in the mortgage loan. When the lending company observes that the loan applicant is indeed financial capable of entering into such a mortgage transaction, the lending company then grants the mortgage loan. Furthermore, the lending company issues its terms and conditions regarding the mortgage loan, which details the amount of money that will be lent, as well as the terms of repayment of the mortgage loan, interest rate and other essential factors. Once the loan applicant accepts the terms and conditions and the commitment for the loan and its repayment, the transaction is now considered a binding mortgage contract.
Mortgage loans that involve real estate properties for residential purposes generally carry a fixed annual percentage rate (APR) or interest rate that will run for around fifteen to thirty years. This interest rate is generally influenced by the current market value of the real estate property at the time when the borrower submitted his loan application. The lending company has the privilege to put some more value on its yield, which may be more than the indicated interest rate, by asking the loan applicant to pay additional fees as soon as the loan is finalized. Such so-called value may be equivalent to a fraction of the total amount requested in the mortgage loan. Hence, it is very helpful to the loan applicant or borrower to pay as much as he can during the initial stages of the mortgage loan process so that the interest rate of the contract may be decreased over the stipulated term of the mortgage loan.
The lending company can generally foreclose a real estate property that has been identified in the mortgage transaction once the transaction is put on a default condition. Two major types of foreclosure proceedings may be employed. Foreclosure by judicial sale involves the supervision of the court and is commonly used across the entire United States. This type of foreclosure proceeding is generally not final unless the court verifies that the mortgaged property is indeed subjected to sale (Menino, 2006). Foreclosure by judicial sale generally follows a series of actions that consists of a notice of a court hearing, the formal court hearing itself, a judicial determination of the default of the mortgage transaction, the notice of sale, the actual sale of the real estate property involved, a verification of the sale of the real estate property and its associated redemption, and the awarding of a court judgment for any deficiency. A deficiency is defined by mortgage transactions as the differences between the price of the sold real estate property and the actual amount of money owed by the borrower in the form of a debt.
The other major type of foreclosure proceeding is known as foreclosure by power of sale. This type of foreclosure proceeding acts through the same mechanism as foreclosure by judicial sale, yet it additionally involves the actual notice and selling procedures, which technically will serve as a substitute to the court supervision that is a notable feature of foreclosure by judicial sale proceedings. In this setting, when the foreclosure sale profits are not enough to cover the known mortgage debt, the lending company can usually request for a judgment against the borrower for not making the expected regular payments, resulting in a deficiency in his mortgage payments. On the other hand, if the foreclosure sale generates more than the expected amount of earnings, the lending company may request the loan holder to pay the same amount of extra earnings observed from such sales. It is important in both major types of foreclosure proceedings that the actual foreclosure action be performed according to the existing rules and law regarding mortgage loans. This action results in the restriction of the borrower’s capability of re-owning the foreclosed property, and the any other individual may have a better chance of buying the real estate property, together with its clean and untarnished real estate property title.
Foreclosure serves as a special privilege that a lending company may perform in order to collect debts from a delinquent borrower. Such privilege provides the lending company the power to sell a real estate property that is involved in the mortgage agreement in order to use the earnings from the sale for the payment of the delinquent debt. In the United States, the rights of the borrower over a mortgage agreement may vary, depending on the real estate property law of each state (Cagan, 2006). However, the major features of a mortgage loan are generally similar across the country.
Knowing the severe consequences of a foreclosure proceeding, the borrower should thus be aware that it is very important that he regularly pays the monthly dues that are expected after committing to a mortgaged loan agreement (CCCS, 2007). In most cases in the United States, the duration in wherein a borrower may do this goes beyond the time when the real estate property is sold. Furthermore, foreclosure by judicial sale may only proceed when the court observes that the price of the real estate property being sold or auctioned is at least a fraction or percentage above the assessment value of the real estate property. Foreclosures by judicial sale are generally tedious and technically complicated, hence there are some cases wherein the lending company would proceed with their delinquent mortgage transactions using a power-of-sale provision. This prerequisite allows the sale of a foreclosed real estate property without the requirement of a court approval that a default setting of the mortgage agreement has been reached. This setting is only employed in certain states of the U.S., and it is only allowed when the sale is done in public and published in the local newspaper or media. The price of the real estate property for sale should be specified in the publication, as well as provide a description of the property for sale. Should a sale take place soon after, the sale details should also be published in the local newspapers. So far, this shortcut proceeding has been favorably accepted in certain states in the U.S.
Cagan CL (2006): A ripple, not a tidal wave: Foreclosure prevalence and foreclosure discount. First American Real Estate Solutions, CA. 17 pages.
Consolidated Credit Counseling Services, Inc. (2007): Avoiding foreclosure. Consolidated Credit Counseling Services, Florida. 9 pages.
Menino TM (2006): Foreclosure trends, 2006. Department of Neighborhood Development, City of Boston. 9 pages.