Sunday 2nd December, 2007

 

Mortgage loan can be modified

 
 
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The US Conference of Mayors reports that several metro areas will be hard hit by a mortgage crisis. The largest will be New York City, where losses from foreclosures may exceed US$10 billion, and property value will fall seven per cent.

It is expected that ten per cent of all homeowners will be forced to sell. On the other side of the coin, this would be the best time to buy.

Locally, thousands of low-income people have entered into mortgages in our own housing boom. Many of them may not have been able to qualify under previous regulations, which were stricter. That, together with ballooning inflation on food prices, could cause our mortgage market to face foreclosure risk.

But what is foreclosure?

Foreclosure is a legal process that occurs when a borrower fails to make the regular payment on his mortgage loan, and the lender, such as a bank, has to sell the property.

Typically, the property would have been used to secure the mortgage, and any failure to make the monthly payments against the loan, allows the lender to transfer legal title of the property (to repossess) and sell it off in order to recover the money loaned.

Two months behind in payments is sufficient to invoke foreclosure. A letter is the first form of notice of intention to repossess. At the end of the process, the lender is said to have “foreclosed its lien.”

Types of foreclosures

There are two types of foreclosures. The first is called foreclosure by judicial sale, which is supervised by a court of law. This method is used when there are likely to be various parties with different interests in the property, or other debts to be paid from the proceeds of the sale. The court seeks to oversee that the new title of ownership is proper.

The second type is foreclosure by power of sale. This does not require much court intervention. Commonly, the property is auctioned off to the highest bidder. The common difficulty in this method is that property may still be occupied.

The term “strict foreclosure” is also used to describe the judicial method. Its focus is to simply get the arrears paid off. Once this is done, whoever pays, gets title.

In an auction, the base price will be the amount owing to the lender.

In general, the lender does not want the property, the lender wants back his money. It is normal to assume that after the debt is satisfied, the extra money will be returned to the owner who has defaulted. But that may not always be so. Occasionally too, the lender may keep the property.

It is always better to begin to negotiate with the lenders as soon as you sense difficulty in making the payments, rather than allow foreclosure.

What is equity?

Your equity in the property refers to the difference between what the property is worth and how much you owe on the property.

Your equity is what you actually own.

The more equity you have, the better it is to proceed with a foreclosure by sale. If you have little equity, then strict foreclosure or judicial sale is the best choice.

The terms and conditions of a mortgage loan can be modified, if you act early.

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