Understanding Foreclosure

Owning Your Home

Oftentimes when people say they "own" their home, what they are actually referring to is having a mortgage loan on their home instead of renting. Although they are listed as the owners on their homes, they are not actually the lien holders. This means that the homeowners are indeed considered owners of the home, but in the legal sense the home actually belongs to the lender providing the mortgage loan. For this reason, a homeowner only owns the home for the duration of time that mortgage loan payments are made promptly and as agreed in the original contract, or until the loan is paid off completely.

The lender has the legal right to begin foreclosure proceedings immediately after a homeowner breaches the contract of the loan. In other words, you don't have to fall far behind in your mortgage payments before the threat of foreclosure becomes a reality. Although lenders can start foreclosure proceedings as quickly as with one missed payment, most lenders wait a few months to give borrowers the chance to either catch up on payments or to negotiate a new payment plan.

First and Second Mortgages

When making an attempt at understanding foreclosure, it's important to realize that foreclosure can occur as a result of more than just falling behind on your primary mortgage loan. Here are some common causes of foreclosure:

• The borrower defaults on payments of the primary mortgage loan.
• The borrower defaults on payments to other loans which the home was used as collateral for:
  • Home Equity Loan
  • Home Equity Line of Credit
• The borrower falls behind in property taxes.

It is important to remember that even if the primary mortgage is completely up to date, and there has never been a late payment, the owner can still lose the home if payments on subordinate mortgages or taxes aren't made in a timely manner.

Even if the primary mortgage is completely paid off, an owner can lose their home to foreclosure if an equity loan isn't paid, or if property taxes aren't kept up to date.

Understanding Foreclosure Options

Falling behind in mortgage payments does not automatically doom the borrower to facing foreclosure. In the vast majority of instances, lenders would prefer to work with the borrower in an attempt to avoid foreclosure.

The trick is to stay in constant contact with your lender. The best scenario would be to contact your mortgage lender before you even fall behind in payments because the lender may offer some alternate payment options or may even allow you to skip a month's payment altogether while you get caught up financially. Contact your lender immediately when you make the realization that you may not be able to fully cover the cost of your mortgage payment.

When a lender initially begins foreclosure proceedings, there are still options for the homeowner to keep their home. The further into foreclosure the home goes, however, the more difficult it becomes to find a way out. For this reason, a proactive stance when it comes to understanding foreclosure is vital.

Understanding Why Foreclosure Is Important

Of course, homeowners who encounter foreclosure grasp the gravity of the situation, but why should you care about foreclosure issues if your home payments are up to date?

When homes are foreclosed, they are often resold at an amount that can be considerably lower than the market value they would have received if sold through traditional means. The sales prices of the homes in your neighborhood can affect the market value of your own home. Simply put, your neighbor going into foreclosure can have a direct effect on how much money your own home is worth.

Obviously foreclosure is not merely a problem for the people who experience it first-hand.