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How Do Foreclosures Work
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According to a statistical report released by CNN Money, 1.3 million homes were foreclosed during the year 2006. In the US, the sub prime mortgage market has still not recovered; these figures will rise further in the coming years.
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Understanding how foreclosures work can help in avoiding foreclosures.
Foreclosure is typically a legal process used by the banks and other financial organization, where the creditor sells or repossesses a portion or the entire real estate property due the homeowner’s inability to repay the mortgage amount. The creditor has the legal right to sell the property to another customer in order to recover the cost of the loan.
Typical process of foreclosure starts when the borrower misses the first mortgage payment. Lenders often provide a 30-day grace period before which the borrower needs to pay the monthly mortgage payment along with a penalty. If the borrowers do not pay the amount consecutively for the next three months, then the lenders get compelled to start the actual process of foreclosure. This occurs in two ways that include judicial sale and power of sale. In case of judicial sale, the court needs to provide permission to the lender to sell the property by auction. This auction is carried out in the sheriff’s office. A judicial sale is a lengthy process.
In contrast, power of sale is typically faster than judicial sale. In case of power of sale, mortgage lender has the right to sell the property through auction. The borrower is intimated about the missed payments and provided a grace period. If the borrower does not turn up, the mortgage lender draws up a deed of trust and transfers the property temporarily to a trustee. The trustee is then allowed to sell the property on behalf of the lender. The entire process is subjected to judicial review so as to ensure that everything is carried out as per the law.
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