Foreclosure
If the promissory note was made with a recourse clause and if the sale does not bring enough to pay the existing balance of principal and fees, then the mortgagee can file a claim for a deficiency judgment.
Other options such as refinancing, a short sale, alternate financing, temporary arrangements with the lender, or even bankruptcy may present homeowners with ways to avoid foreclosure.
Although there are slight differences between the states, the foreclosure process generally follows a timeline beginning with initial missed payments, moving to a sale being scheduled and finally a redemption period (if available).
[citation needed] Lenders have also argued that taking foreclosures out of the courts is actually kinder and less traumatic to defaulting borrowers, as it avoids the in terrorem effects of being sued.
In some US states, particularly those where only judicial foreclosure is available, the constitutional issue of due process has affected the ability of some lenders to foreclose.
A further rationale is that under the principle of freedom of contract, if debtors wish to enjoy the additional protection of the formalities of judicial foreclosure, it is their burden to find a lender willing to provide a loan secured by a traditional conventional mortgage instead of a deed of trust with a power of sale.
This is accomplished through the filing of a lis pendens as part of the lawsuit and recordation of it in order to provide public notice of the pendency of the foreclosure action.
One tender attempt was held inadequate when the check arrived via FedEx on a Monday, three days after the foreclosure sale had already occurred on Friday.
[19] At least one textbook has attacked the paradox inherent in the tender rule—namely, if the borrower actually had enough cash to promptly pay the entire balance, they would have already paid it off and the lender would not be trying to foreclose upon them in the first place[20]—but it continues to be the law in the aforementioned states.
Occasionally, borrowers have raised enough cash at the last minute (usually through desperate fire sales of other unencumbered assets) to offer good tender and have thereby preserved their rights to challenge the foreclosure process.
[24][25] When the entity (in the US, typically a county sheriff or designee) auctions a foreclosed property the noteholder may set the starting price as the remaining balance on the mortgage loan.
When the remaining mortgage balance is higher than the actual home value, the foreclosing party is unlikely to attract auction bids at this price level.
In most situations, insurance requirements guarantee that the lender gets back some pre-defined proportion of the loan value, either from foreclosure auction proceeds or from PMI or a combination of those.
If the lender chooses not to pursue deficiency judgment—or cannot because the mortgage is non-recourse—and accepts the loss, the borrower may have to pay income taxes on the unrepaid amount if it can be considered "forgiven debt".
[26] Several policies, including the U.S. Treasury sponsored Hope Now initiative and the 2009 "Making Home Affordable" plan have offered incentives to renegotiate mortgages.
Borrowers were heard to complain that they were misled by these practices and would often be "surprised" that their home had been sold at foreclosure auction, as they believed they were in a "loan modification process".
California has enacted legislation to eliminate this type of "dual-tracking" – The Homeowner Bill of Rights – AB 278, SB 900, That went into effect on January 1, 2013.
Second, researchers cannot tell the extent to which recent foreclosures have reversed the advances in homeownership that some groups, historically lacking equal access, have made.
[32] In 2009, the United States Congress tried to rescue the economy with a $700 billion bailout for the financial industry; however, there was a growing consensus that the deepening collapse of the housing market was at the heart of the country's acute economic downturn.
After spending billions of dollars rescuing financial institutions only to see the economy spiral even deeper into crisis, both liberal and conservative economists and lawmakers pushed to redirect an economic stimulus bill to what they saw as the core problem: the housing market.
A quote from RealtyTrac CEO James Saccacio summarizes the recent trends: “Foreclosure floodwaters receded somewhat in 2010 in the nation’s hardest-hit housing markets.
Cities with high foreclosure rates often experience more crime and thefts with abandoned houses being broken into, garbage collecting on lawns, and an increase in prostitution.
The conventional view suggested is that the increase in foreclosures will cause declines in the sales value of neighboring properties, which, in turn, will lead to an extension of the housing crisis.
The 1990 Regulations on Granting Land Use Rights dealt further with this followed by the Urban Real Estate Law (adopted July 5, 1994),[42] the "Security Law of the People's Republic of China" (adopted June 30, 1995), and then the "Urban Mortgage Measures" (issued May 9, 1997)[43] resulting in land privatization and mortgage lending practices.
These include mandatory secondary security, rescission (Chinese Contract Law), and maintaining accounts at the lending bank to cover any defaults without prior notice to the borrower.
Under the "Civil Procedure Law", foreclosures should be finalized in a six-month time frame but this is dependent on several things including if the mortgager applies to the court for execution of the judgment.
Spanish mortgage holders are responsible for the full amount of the loan to the bank in addition to penalty interest charges, and court fees.
In the case of mortgage possession or repossession, if the home is sold or auctioned for a price that exceeds the loan balance, those funds are returned to the consumer.
By contrast, in the case of foreclosure the mortgage company retains all rights to proceeds from a sale or auction but the debtor is not liable for any shortfall.
An Assisted Voluntary Sale does have some negative credit impact for the consumer, but the adverse effect is less pronounced than one might suffer if the case were to proceed to the courts.
