Some Basics of Foreclosures for Borrowers and Buyers

A fear of the unknown can paralyse, and for those in pending foreclosures situations valuable time can be lost when the borrower does not know the basics. Timely and sensible decisions are delayed or simply not made until too late and the home is lost. Equally home buyers may be scared off the chance to buy well by the many warnings that this market is different, and not understand that an overview of some basics can assist in determining the practicality of pursuing the reward of a discounted property.

One basic understanding that can help both parties is how much time there is before auction. Knowledge of the time frame allows the borrower to plan his moves to save his home by looking to the lender for refinancing or avoid the foreclosure through a sale into a market generally unfavorable to sellers. A potential buyer of a pre foreclosure must have an idea of the time he has to negotiate an offer that he can finance and which will be acceptable to the lender in the event of a proposed short sale. There may be junior lien holders that require the buyer’s time in negotiations. Since there are a number of strategies the buyer may pursue, the length of time before the foreclosure sale is of vital importance.

Timing is determined from the start by the state law involved. A home owner cannot choose what instrument secures the home loan, and in law the Mortgage and the Deed of Trust are not the same. Most States in the US use mortgages as the instrument of security. Those that don’t complete a Deed of Trust, some states allow both and that’s where the timing factor comes in. There are important differences in the two, although the home buyer should be concerned only when facing foreclosure.

A mortgage is between two parties, the borrower is the mortgagor and the lender the mortgagee who has the right to sell the property secured by the mortgage when the borrower defaults on debt repayment. The homeowner holds full title and rights of ownership. The foreclosure process must go through the courts in most instances and is known as a judicial foreclosure. It can take months and even years, and is expensive.

A Deed of Trust serves a similar purpose but is often called the Third Party security. In the public record it tells every interested party there is a lien on the property. The lender is the beneficiary, and the third party is the trustee who holds temporary title until the lien is repaid. The Trustee is an independent and neutral person, and may be an attorney or a Title Insurance company. He has the power to sell the home if the loan is in default. The lender must ask the trustee to act both in accordance with state law and terms in the Deed itself. The Trustee then follows steps outside the court system, meaning the foreclosure is much swifter and cheaper for the lender.

Realtors, county offices and online foreclosure listings and services sites are resources that will be able to provide an estimate of the time to foreclosure auction or sheriff sale in your area.