What Leads To Foreclosure?
“What leads to foreclosures?” – If this is a question you have just asked, then you are definitely on the right track to avoiding it as prevention is better than cure.
The Foreclosure Process
Foreclosures are defined as the legal proceedings which are initiated by the lender (the financial institution that supplied the mortgage) to repossess a property which has become default as a result of outstanding mortgage payment(s). In more human terms, this means that at the time the mortgage contract was signed, the debtor (the person taking out the mortgage) signed a promissory note to the lender stating that he or she will be prompt with the monthly payment until the full amount of the loan, with the accompanying interest and fees, has been paid off. Due to unforeseen circumstances, however, the debtor may at some stage not be able to make the payment after which the lender will file a public notice of default on the payment.
The property now enters the pre foreclosure state which can in some cases be seen as a grace period in which the current homeowner can make alternative arrangements to pay the mortgage amount due and continue with the usual mortgage payments. Such arrangements include refinancing, mortgage negotiations with the lender or, in extreme cases, even filing for bankruptcy which will halt the foreclosure process for a period.
Types of Foreclosure
There are generally two types of foreclosures, the first of which are known as statutory foreclosures in which the debtor is served a notice of default by a representative of the lender. Should the debtor be unable to procure the necessary funds within the pre foreclosure period to settle the outstanding mortgage, the lender will then auction the property to the highest bidder. The funds accumulated from the auction will then go to all the lender and other parties concerned to which an amount is owed. These types of foreclosures are also known as ‘power-of-sale’ foreclosures due to the corresponding clause necessary in the contract for it to be valid.
The second of the two foreclosures are known as judicial foreclosures. In this instance where a homeowner has defaulted on the mortgage payments the holder of the promissory note takes the property back in full payment of a debt (as per contract) and a sheriff or any other representative of the court may conduct the auction of the property in question.
So as you may well see, foreclosures happen as a result of the mortgage instalment not being paid. The causes of this, however, is as unique as every person affected by it. Where recent times have seen people unable to keep up with their mortgage payments due to being made redundant, injury, illness or any other tragedy, a certain amount of blame can be put on current economic instability. Evidence of this can be seen in the 1.1 million homeowners currently facing foreclosures.