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It is an
unfortunate commentary, but when economic activity
declines and housing activity decreases more real
property enter the foreclosure process. High
interest rates and creative financing arrangements
also are contributing factors.
When prices are rapidly accelerating during a real
estate "bonanza", many people go to any lengths
available to get into the market through investments
in vacation homes, rental housing and "trading up"
to more expensive properties. In some cases, this
results in the taking on of high interest rate
payments and second, third and even fourth deeds of
trust. Many buyers anticipate that interest rates
will drop and home prices will continue to escalate.
Neither may occur, and borrowers may be faced with
large "balloon" payments becoming due. When payments
cannot be met, the foreclosure process looms on the
horizon.
In the foreclosure process, one thing should be kept
in mind: as a general rule, a lender would rather
receive payments than receive a home due to a
foreclosure. Lenders are not in the business of
selling real estate and will often try to
accommodate property owners who are having payment
problems. The best plan is to contact the lender
before payment problems arise. If monthly payments
are too hefty, it may be that a lender will be able
to
make some alternative payment arrangements until the
owner's financial situation improves.
Let's say, however, that a property owner has missed
payments and has not made any alternate arrangements
with the lender. In this case, the lender may decide
to begin the foreclosure process. Under such
circumstances, the lender, whether a bank, savings
and loan or private party, will request that the
trustee, often a title company, file a notice of
default with the county recorder's office. A copy of
the notice is mailed to the property owner.
If the default is due to a balloon payment not being
made when due, the lender can require full payment
on the entire outstanding loan as the only way to
cure the default. If the default is not cured, the
lender may direct the trustee to sell the property
at a public sale.
In cases of a public sale, a notice of sale must be
published in a local newspaper and posted in a
public place, usually the courthouse, for three
consecutive weeks. Once the notice of sale has been
recorded, the property owner has until 5 days prior
to the published sale date to bring the loan
current. If the owner cures the default by making up
the payments, the deed of trust will be reinstated
and regular monthly payments will continue as
before.
After this time, it may still be possible for the
property owner to work out a postponement on the
sale with the lender. However, if no postponement is
reached, the property goes "on the block". At the
sale, buyers must pay the amount of their bid in
cash, cashier's check or other instrument acceptable
to the trustee. A lender may "credit bid" up to the
amount of the obligation being foreclosed upon.
With the recent attention given to foreclosure,
there also has been corresponding interest in buying
foreclosed properties. However, caveat emptor: buyer
beware. Foreclosed properties are very likely to be
burdened with overdue taxes, liens and clouded
titles. A buyer should do his homework and ask a
local title company for information concerning these
outstanding liens and encumbrances. Title insurance
may or may not be available
following a foreclosure sale and various exceptions
may be included in any title insurance policy issued
to a buyer of a foreclosed property.
Your local title company will be happy to provide
additional information.
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