Home Foreclosure occurs when the lender, usually a mortgagee is successful in getting the mortgagor’s rights in the property revoked due to the mortgagor being unable of paying for the property. By foreclosing the property, the lender is in effect repossessing it. In the United States, there are two types of foreclosure: Strict foreclosure and Judicial Foreclosure. In the former, the lender claims the title and possession of the property back in full satisfaction of a debt, which is usually a contracted one.
In the latter, the property becomes subject to auction, by the county sheriff or some other court official. This type is the more common amongst the states in order to protect any equity the debtor may have in the property, incase the value of the debt is less than the value of the property. Another type of foreclosure that may be used is the ‘statutory’ kind. This is when the mortgagee’s servicer’s designated legal agent gives the debtor a ‘notice to default’ which means that the mortgagee is selling the property in a form prescribed by a state statute.
The current economical climate has seen a surge in home foreclosures globally. This is due to the fact that many people who were able to repay debts or mortgages are being unable to meet the very same demands due to the downturn, with some even suffering from negative equity. This is a direct result of increase in interest rates and unemployment due to the economy’s state of recession. According to the BBC falling sales and decreasing prices have made it harder for homeowners who have hit difficulties to sell their homes and clear their debts.
The RealtyTrac data showed there were 179,599 foreclosures – or repossession – filings in July. This equates to one for every 693 households. California, Florida, Ohio, Michigan and Georgia accounted for more than half of the cases. Borrowers with sub-prime loans have been particularly hard hit as the US sub-prime mortgage sector offers higher-risk loans to people with a poor credit history. US interest rates have risen which has resulted in the housing bubble has burst and causing a growing number of sub-prime borrowers to default on their loans.
Because the lenders have often sold on the debt, this has led to extensive financial difficulties for a number of investment funds with heavy exposure to the sector thus prompting a wider financial crisis. According to investigations by usnews. com, there have been total of 3,157,806 foreclosure filings default notices, auction sale notices and bank repossessions were reported on 2,330,483 U. S. roperties during the year, an 81 percent increase in total properties from 2007 and a 225 percent increase in total properties from 2006. However, despite this dire situation, there are some lenders who are attempting to aid it’s customers in every which way possible. For example, the US bank Citigroup halted foreclosures for many of its struggling mortgage borrowers in November of last year to soften the blow of the then impending American sub-prime loan crisis.
At the time the bank said it was willing to work with clients based on their ‘good faith’ to restructure their loan agreement, as long as they had a sufficient income to repay it. Recently, with unemployment rates soaring, it is difficult to say how many other financial institutes will take this example when anticipating their repayments. To conclude, the act of foreclosure is a dire one which not only affects the lender and borrower, but is traumatic for all involved, therefore, is generally utilised as a last resort.
Courtney from Study Moose
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