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Foreclosure is a legal process where the lender attempts to recover the balance from the borrower who has stopped making the payments by forcing the sale of a property or an asset used as collateral for the loan.
Generally, a lender obtains a security interest from a borrower who mortgages an asset to secure the loan. If the borrower fails to pay the loan, the lender can have a claim on the property pledged as collateral. Through foreclosure, the lender terminates the equitable right of redemption of the borrower and assumes that right to the property. And while foreclosure may signal an end for borrowers, there are some alternatives that may help them deal with foreclosure.
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This requires the borrower to pay all the missed payments. Doing so leads to the reinstatement of the mortgage agreement. In effect, the lender and the borrower are back to their roles before the foreclosure happened.
2. Forbearance
In this arrangement, the lender lowers the borrower’s mortgage for a few months. The missed payments are then added to the principal to be repaid at the end of the loan period.
3. Loan modification
This requires modification of the monthly mortgage payment according to the capacity of the borrower to pay for the loan. Generally, loans are modified through the lowering of interest, extension of the payment period, and reduction of the principal.
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In this arrangement, the borrower signs his or her home over to the lender, but the lender cancels the mortgage. If the lender already started foreclosure proceedings, the foreclosure will then be cancelled.
Foreclosures are difficult, tedious, and can lead to bankruptcy, but they can be dealt with.
Foreclosures and bankruptcy are areas of expertise in Evan Granowitz’s office. Visit this blog to know how they’re dealt with.
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