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When prices are rapidly accelerating during
a real estate "bonanza", many people go to any lengths, available, including
the use of creative financing, to get into market through investments in
vacation homes, rental housing and "trading up" to more expensive properties.
Many buyers anticipate that interest rates will drop and home prices will
continue to escalate. Neither may occur, and when payments cannot be met, more
real property enters the foreclosure process.
In the foreclosure process, one thing should be
kept in mind: as a general rule, a lender would rather receive payments than
receive a home due for foreclosure. Lenders are not in the business of selling
homes and will often try to accommodate homeowners who are having payment
problems. The best plan is to contact the lender before payment problems arise.
If monthly payments are too, hefty, it may be that a lender will be able to
make some alternative payment arrangements until the owner's financial
situation improves.
Let's say, however, that a homeowner has missed
payments and has not made any alternate arrangements with the lender. In this
case, the lender may decide to begin the foreclosure process. Under such
circumstances, the lender, whether a bank, savings and loan or private party,
will request that the trustee, often a title company, file a notice of default
with the county recorder's office. A copy of the notice is mailed to the
homeowner. Once the notice of default has been recorded the homeowner has until
five business days prior to the date set for the sale to cure the default by
making up the payments. Once the default is cured, the deed of trust or
mortgage will be reinstated and regular monthly payments will continue as
before.
If the default is due to a balloon payment not
being made when due, the lender can require full payment on the entire
outstanding loan as the only way to cure the default. If the default is not
cured, the lender may then direct the trustee to sell the property at a public
sale.
In cases of a public sale, a notice of sale
must be published in a local newspaper and posted in a public place for three
consecutive weeks. During this time, it may still be possible for the homeowner
to work out a postponement is reached, the property goes "on the block". At the
sale, buyers must pay the amount of their bid in cash, cashier's check or other
instrument acceptable to the trustee. A lender may "credit bid" up to the
amount of the obligation being foreclosed upon.
With the recent attention given to foreclosure,
there also has been corresponding interest in buying foreclosed properties.
However, caveat emptor: buyer beware. Foreclosed properties are very likely to
be burdened with overdue taxes, liens and clouded title. A buyer should do this
homework and ask a local title company for information concerning these
outstanding liens and encumbrances.
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