Comprehending The Foreclosure Procedure

photo by Quint Cobb Foreclosure Relief, Flickr

Today’s economy has created a very high foreclosure rate.  It is said that one in four homes in much of the U.S. are either foreclosed against or are under foreclosure proceedings. Some areas such as California are experiencing even higher numbers of foreclosures.

Generally, one could say that there are two basic types of foreclosure—the mortgage foreclosure and the deed of trust foreclosure.  Both end basically in the same manner, namely the property owner loses his property, but legally the steps to foreclosure are slightly different.  Also be aware that different states have inserted special rules in their mortgage laws that could change or alter some of the following descriptions.
The Mortgage Foreclosure

The mortgage foreclosure begins by thereunder issuing a formal demand for payment, in the form of a “notice for default.”   A notice is sent through the mail, often by return-receipt-request, to the borrower and outlines how the borrower is in default.

Various reasons can be that the borrower has not paid for his home insurance that primarily carries the name of the lender in case of loss, or perhaps the borrower has been negligent in paying his taxes in a timely manner, or most commonly, the borrower has failed to make agreed upon payments to the lender.  Eventually this kind of foreclosure will result in a judiciary foreclosure whereby the judge allows the lender to reclaim the property, or foreclose.

Again generally, the borrower is given “X” amount of days to make up the deficiency. Usually this amount also includes late fees, interest, and even the cost of the lender to take the borrower to court.  Ordinarily when the mortgage and note were originally made these terms were spelled out for the borrower.  Thus it should not be a complete surprise for the borrower to be so treated.

A Deed Of Trust Foreclosure

In this instance, the borrower is referred to as the trustor, the lender becomes the beneficiary and an impartial third party who retains the title will be referred to as the representative of the lender or trustee.  In this illustration the title to the property was being held as security for the loan.  Again, as in the mortgage foreclosure, terms for this handling of the title, etc. has been agreed to when the loan was initiated.

Because there are no courts involved, property passes quickly from the trustee to either the beneficiary or even a buyer of the property.  Again, there are many similarities to either manner of foreclosure.  Both require notice, and both give the borrower a grace period to make the payments, etc.

Which manner your particular state uses is governed by foreclosure laws that with a little diligence you can learn about on the Internet. This may in turn help you avoid mortgage fraud or even help you avoid foreclosure should it come to that.  It has been noted however, that the best reaction you should have to financial problems that may lead to foreclosure is to get in touch with your lender as soon as possible.