A lender can initiate foreclosure process if the borrower fails to make monthly payments on mortgage loan for two months or more. Prior to initiating this process the lender gives a notice to the borrower to effect the outstanding payment within a specified period of time, usually within 20 days. This notice period is known as pre-foreclosure.
By initiating the foreclosure process the lender exercises his legal right to acquire the mortgaged property for the defaulted loan. If the amount of the defaulted loan is more than the property’s worth a deficiency judgement is pursued. The lending institution tries to dispose of the property in auction sales as quickly as possible in order to close the bad debt by setting it off the sales proceeds against the debt.
The lender is not allowed to profit out of the sale of foreclosed property. The lender is obliged to return the excess amount to the borrower after adjusting the cost of the proceedings.
The Impact on the Individual and His Family
The foreclosures affect the individuals and their families in several ways; financially, socially and in the way of future sustenance:
- The families might move to new and cheaper neighborhoods and homes.
- They face financial insecurity and economic hardship.
- The personal and family stress can result into disrupted relationships and may even lead to sickness.
The Impact on the Communities
- The large scale foreclosures lead to decline in the property values in the area because of a large number of vacant, under-maintained, dilapidated and abandoned houses and properties.
- The large scale foreclosures and consequent housing vacancies create social disorder and lead to an increase in criminal activities. This followed by undiminished flow of migrants, both in and out, weakens the social fabric.
An Unfortunate Example
When an aged and retired person in Columbus County of North Carolina received the foreclosure notice, he felt so distraught that he simply packed up with his wife and went to a poorer and more affordable neighborhood in another county. He was already sick and ailing, and was hardly able to eke out a decent living. He had no resources to pay any more mortgage installments or to engage lawyers for involving into endless litigations. You know well the intimidating tactics and the might of the powerful lending lobby. Furthermore, if you are unaware of your rights and the protection under the law, you feel hopeless and might abandon your home and move elsewhere.
This old gentleman must have thought that abandoning debt-burdened hone is the end of his problems, but the fate willed otherwise. After a year of some respite, the ghost of his abandoned house came haunting after him. He started getting notices from the county office of his former residence that his house at present in shambles is violating the local housing code. It had already been ransacked by scavengers. He got a huge bill from the municipal office by way of penalties, tax liabilities and for other municipal services like garbage clearance.
The debt collector from the lending bank tracked him down at his new refuge and presented him the bill for unpaid dues compounded with interest and penalty charges. The poor guy is now an absolute paper, invalid and sick. Picking up such formidably big bills is the last thing he ever expected.
That is not all. His last hope went bust when he received intimation from the Social Security Administration rejecting his application for disability benefits because the records showed that he owned housing property in Columbus County.
Like millions of defaulted borrowers this unfortunate gentleman may be just one small grain got caught in the grinding mill of the economy. Like millions of others he may have neglected to take some elementary safeguards to secure his future.
Some Safeguards to Follow
- Explore ways to forestall foreclosure as it will affect your future credibility.
- Pay immediate attention to any notice from the lender. Be in communication with the lending bank to work out easier repayment terms..
- Do not hesitate to give complete financial information, including the required documents.
- Stay put in your home. If you abandon your home you may lose the eligibility to claim certain benefits from Social Security Administration or from other programs meant especially for Homeowners in distress.
- There are several housing counseling agencies which provide valuable information on government as well as private and community programs in order to tackle your temporary inability to repay mortgage loans. Contact any such agency nearest to you.
- Get expert counseling on credit management. Some agencies provide these services free of charge.
Auctions of Foreclosed Properties
One good thing for shrewd real estate investors is the opportunity to pick up excellent foreclosed properties at highly discounted prices at such auctions. Jeff Adams, a notable investment advisor, has always been stressing this point in his online columns.
