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