The Federal Deposit Insurance Corporation (FDIC) has
compiled information from different sources on the rate of foreclosures in
America and the outlook is not promising.
According to the report, the Mortgage Bankers Association (MBA) reported
that every three months 250,000 families enter into foreclosure in the
U.S. That translates into one out of
every 200 American homes. Mortgage
default has reached epidemic proportions in our country and an ever-increasing
number of families are facing homelessness or at least the loss of their homes
and financial uncertainty.
HUD Suggestions to
Avoid Foreclosure
U.S. Department of Housing and Urban Development (HUD)
offers some tips to try to avoid foreclosure, they include:
- Do not ignore the
problem - The further behind a borrower gets in their mortgage payments,
the harder it will be to reinstate the loan and the more likely the borrower
will lose his/her home.
- Contact the lender as
soon as possible - When a borrower realizes he/she will have a problem
making the mortgage payments he/she should let the lender know immediately. Lenders can offer options to help borrowers
through difficult financial times. They do
not want to repossess a home.
- Open and respond to
all correspondence from the lender – Lenders usually include information
that may help a borrower keep his/her home in the first notices they send
out. This information could help the
borrower avoid foreclosure and it usually includes default prevention options.
- Know the rights afforded
to a borrower – A borrower should review the loan documents so he/she may have
a clear understanding of the lender's options if he/she cannot make the mortgage
payments. Learn the local foreclosure
laws and action timeframes of the jurisdiction where the residence is located.
- Understand the foreclosure
prevention options – A borrower can contact his/her lender to find out what
loss mitigation or foreclosure prevention options are available to help them
avoid foreclosure.
Get professional legal assistance from an
experienced foreclosure attorney.
HUD suggests that a borrower prioritize his/her spending if they
are having trouble keeping up with their mortgage payments. They recommend that the borrower's first
order of priority should be healthcare and after that, it should be to keep his/her
home. They should review their finances
to see where they can cut spending in order to make the mortgage payments. The individual should make a budget and
sacrifice nonessential spending until he/she can catch up with the mortgage
payments. HUD also recommends
sacrificing assets in order to keep the home.
The liquidation of assets such as a second car, jewelry, or a whole life
insurance policy can help reinstate the loan.
Steps to Foreclosure
If a borrower defaults on his/her mortgage, the mortgage
holder can typically initiate foreclosure according to the timeframe specified
in the mortgage agreement. That period
of time can vary but it will be specified in the mortgage agreement. There are two basic types of foreclosures
recognized across the country but there are also regional foreclosures that are
used in some jurisdictions. Most
foreclosures are conducted in state or local courts but a few are conducted in
Federal courts. A foreclosure is a legal
action and all parties involved must be notified, even though requirements for
notification vary from one jurisdiction to another.
Any profits from the sale of the property are used first to
satisfy any outstanding taxes then to pay the outstanding mortgage and any
legal costs of the lender. After that
any funds that are left are use to compensate other liens against the
property. The borrower is allowed the
remaining proceeds if there is any money left after all debts are satisfied.
Types of Foreclosures
The different types of foreclosures include:
- Judicial Foreclosure
– This type is available in all fifty states and it requires a court-supervised
sale of the mortgaged property. A
Judicial Foreclosure allows the borrower a one-year "right of
redemption" where he/she can buy the property back from the bidder. This type of foreclosure allows the lender to
file a deficiency judgment against the borrower for the balance of the money owed
if the proceeds from the sale fail to cover the mortgage.
- Foreclosure by power
of sale – This type is allowed in twenty-nine states if a power of sale
clause is included in the mortgage agreement. Foreclosure by power of sale involves the sale
of the mortgaged property by the mortgage holder without court supervision. Typically, this is a more expedient way of
foreclosing on a property. This type of
foreclosure does not allow the mortgage holder to seek a deficiency judgment against
the borrower.
- Strict Foreclosure
– This type is handed down through a decree and is only available in a few
states. In this type foreclosure, the
property is not sold but the borrower is ordered by the court to pay the amount
owed within a specified period. If the
conditions are not met, the lender has the right to take possession of the
property. Once the lender has the title,
the property can be sold to satisfy the loan.
If the profits from the sale do not satisfy the amount owed, the lender
can file a deficiency judgment against the former borrower.
- A Trustee's Sale
– This is an easy form of Foreclosure and a trustee under the stipulations of a
Deed of Trust performs the sale. In this
process, the borrower grants a trustee the power to sell the property through a
trustee's sale if the borrower defaults on the mortgage. Any proceeds from the sale are dispersed
according to the priorities outlined in the deed of trust. This is a quick and economical way of
foreclosing on a property but it does not allow for a deficiency judgment against
the borrower.
Reasons for
Foreclosure
Hundreds of thousands of U.S. families are losing their
homes to foreclosure every fiscal quarter making this a foreclosure and
financial plague on our society that will be reeling for years to come. The FDIC published information from a study
conducted by the Homeownership Preservation Foundation (HPF) on some of the
reasons for the high rate of foreclosures in America. The study suggests that many U.S. households
are at a financial tipping point and many families are on the verge of losing
their homes.
The economic tipping points for American families in danger
of losing their homes outlined by the HPF include:
- Thirty-two percent are because of the loss of employment.
- Twenty-five percent are because of a healthcare emergency in
the family.
- Eighty-five percent of households are behind one mortgage
payment.
- Fifty percent of households are behind two payments.
- Most Americans households do not have any savings, do not
have any credit available, and their extended families are in a similar
situation.
- Most U.S. homeowners are first-time mortgagors, and most home
mortgages are less than three-years old.
- Many American households have refinanced their homes two or
three times.
The HPF estimates that forty-three percent of U.S.
households live beyond their means and that almost half of all homeowners in
this country spend more than they earn.
The foundation calculates that approximately fifty-two percent of American
employees live paycheck-to-paycheck and that roughly forty-two percent of Americans
do not have enough liquid assets to support themselves for the recommended three
months should they have a financial crisis.
Get professional legal assistance from an
experienced foreclosure attorney.