What is foreclosure?
Foreclosure is a process that many of us have heard and read about, especially with the bursting of the “housing bubble” and the economic downturn of 2008. Foreclosures remain an issue today in housing in America. This is the first blog in a four-part series that will come to you across 2015. We will be talking about many aspects of the foreclosure process, beginning with what it is and describing terms that are used when discussing foreclosure.
Foreclosure is a legal action taken by the lender (investor), when the property owner has failed to make mortgage payments in the dollar amounts and on the dates outlined in a mortgage contract. This is called default. In this process, the lending institution terminates the owner’s rights to the property in order to reclaim the money loaned to the homeowner for the purchase of their home. With a court order, the property is sold at a Sheriff’s Sale (public auction). Mortgages are secured loans and the home is identified as collateral to be used in this way so the lender has some “security” that they will receive repayment of the money loaned to the homeowner. When the property is sold, the county court must confirm the sale within 30 – 60 days. After the confirmation, the previous owner must vacate the property. The lending institution is then able to place the home on the market to be sold, placing the sale price against the money still owed on the initial mortgage. A foreclosure reference book is available for purchase from the National Consumer Law Center.
When the foreclosure process begins, it runs along a timeline. Understanding the process and where one is located on that timeline is important in order for the homeowner to make the best decisions regarding their home.
Next week’s blog describes the foreclosure timeline and where in the timeline, actions can be taken by the homeowner to try to keep or to sell the home on their own. Attempts to keep the home can involve what’s called a workout. A workout leads to a modification of the mortgage loan. This is a permanent change to the original mortgage document that is done to lower the monthly payments to a level the homeowner can make. The lender and the homeowner must mutually agree to the modifications. Extending the length of the mortgage, lowering the interest rate on the mortgage, or reducing the principal owed on the mortgage can reduce the mortgage payments. (See The Ohio Mortgage Help Workbook(PDF)). The principal of a loan is the amount actually borrowed in the loan, other than the interest calculated on the principal amount. When the principal is reduced, the amount of interest owed is also reduced.
Future blogs will address in more detail how to prevent foreclosure, foreclosure scams, and housing counseling and financial coaching and where you can turn to in order to use these services. In the meantime, check out the Ohio Housing Finance Agency for more information. The Ohio Housing Finance Agency is available to provide you with contact information about Housing and Urban Development (HUD) Housing Counseling agencies and legal aid in your county. They are happy to help homeowners, volunteers, and community members. Their number is 888-404-4674.
