If you are either in the process of buying or selling a foreclosure property, understanding the basic terms associated with the process will help you ask appropriate questions of your REALTOR, the escrow officer, the lender and/or other parties involved in the transaction. This can expedite the timeframe of the process for everyone involved.
Below are the most common terms used in connection with the foreclosure process:
A Deed of Trust:
A Deed of Trust is the security for your loan. It is the document that is recorded in the public records.
A deed of trust contains three parties:
- The Trustor, which is the borrower
- The Trustee, which is an entity that holds “bare or legal” title
- The Beneficiary, which is the lender
The deed of trust is an instrument that identifies the following:
- Original loan amount
- Legal description of the property being used as security for the mortgage
- The parties
- Inception and maturity date of the loan
- Provisions of the mortgage and requirements
- Late fees
- Legal procedures
- Acceleration and alienation clauses
- Riders, if any, regarding such clauses as prepayment penalties or terms of an adjustable rate mortgage
Notice of Default:
Lenders file in the public records where the property is located a public notice called the Notice of Default. It states that the borrower is in default, behind in the mortgage payments, and if the payments are not paid up, the lender will seize the home. In California, lenders typically do not file a Notice of Default until the borrower is at least 60 days behind in making payments. Lenders must then wait 90 days. During that 90-day period, the borrower has the right to make up the back payments and reinstate the loan. After 90 days, the lender is required to publish a notice in the newspaper for 20 days and then may sell the property to the highest acceptable bidder on the courthouse steps. If no acceptable bid is received, the trustee then conveys the property to the lender.
Deed-in-Lieu of Foreclosure:
A potential option taken by a mortgagor (a borrower) to avoid foreclosure under which the mortgagor deeds the collateral property (the home) back to the mortgagee (the lender) in exchange for the release of all obligations under the mortgage.
Foreclosure:
Legal proceeding by which a borrower’s rights to a mortgaged property may be extinguished if the borrower fails to live up to the obligations agreed to in the loan contract. The lender may then declare the entire debt due and owing and may seek to satisfy it by foreclosing. Foreclosure is commonly by a court-decreed sale of the property to the highest bidder, who is often the lender.
As we all know, foreclosures continue to be in the news and continue to dominate the market. This means that REALTORS, struggling homeowners, and potential buyers need to have information about the process and terms of foreclosure in order to make important decisions about the sale or purchase of a property. Knowing the terminology is an important step in that process.
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