What is Foreclosure?

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.

Foreclosure numbers change every year. Of the one hundred thirty five or so million homes in America, approximately 1% or roughly 1.3 million of them were facing foreclosure. A lot of these homeowners are able to work their way out of foreclosure, however, according to latest CoreLogic statistics, there were about 575,000 homes that went through foreclosure last year. Foreclosure threatens these homeowners because they are late or seriously behind on their mortgage payments.

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). 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.

There are two different types of loan systems used in the United States. When an individual applies for a loan to buy a property, the property is secured either through a Mortgage or a Trust Deed. This allows the lending institution to create a lien on the property as security in the event the borrower does not fulfill the obligations in the loan agreement. This type of lien gives the lender the right to sell the property in order to satisfy the outstanding loan balance.

Each state uses one of these loan systems as their legal means for security. Some states will use both the mortgage and trust deed systems because of the advantages associated with each if foreclosure occurs. If you ask your county official at the courthouse, they will know if your state uses trust deeds or mortgages as their primary loan type.

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