The Foreclosure Process

The word "foreclosure" strikes fear into the hearts of homeowners. It is not as scary as it sounds, however. The foreclosure process is actually a protection for homeowners, rather than a means for cold-hearted lenders to take advantage of struggling borrowers. In very basic terms, foreclosure is a process which provides homeowners with substantial notice and opportunity to cure a delinquent home loan. It is important for every homeowner to have a basic understanding of the foreclosure process and how it works.

FINANCING THE PURCHASE OF A HOME.

When a consumer buys a home, he or she typically makes a down payment somewhere in the range of 20% and finances the remaining balance of the purchase price over a period of time, generally 30 years. The loan for the balance of the purchase price is a "secured" loan. This means that repayment of the loan is secured or guaranteed by collateral. In the case of a home loan, the home itself acts as the collateral. The home buyer/borrower will sign a promissory note agreeing to repay the balance of the loan under specific terms and conditions. In addition, the borrower will sign a deed of trust which will be recorded against the property. The deed of trust gives the lender a security interest in the property and allows the lender to foreclose against the property if the borrower defaults on the loan.

WHAT IS FORECLOSURE?

Foreclosure is a process that may seem harsh, but in reality was enacted not only for the protection of lenders, but more significantly for the protection of homeowners. Under the laws of most states, a lender is required to resort to the property in order to collect on a defaulted home loan. In other words, the mortgage lender is not permitted to go after the borrower's wages or other assets, but most look to the property to resolve the delinquent balance. Foreclosure provides a process by which the lender and borrower can work together to either resolve a delinquent loan balance or, if this cannot be done, to repay the loan and relieve the homeowner of further loan obligations.

THE FORECLOSURE PROCESS.

Following are the basic steps in the foreclosure process: