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The foreclosure process

Monday, October 1, 2007 | 8:48 a.m. CDT; updated 3:30 p.m. CDT, Tuesday, July 22, 2008

A foreclosure occurs when a property owner cannot make payments on a loan, usually leading to seizure of the property.

The steps in a typical process are:

1. After three to six months of missed payments, a lender orders a trustee to record a Notice of Default at the County Recorder’s Office. This puts the borrower on notice that he or she is facing foreclosure and begins a reinstatement period that will typically run until five days before a home is auctioned.

2. If the default isn’t corrected within three months, a foreclosure sale date is established. The homeowner will receive a Notice of Sale that will also be registered at the Recorder’s Office, posted on the property and published in a daily newspaper for three weeks.

3. A Trustee Sale is held on a date stated in the Notice of Sale, usually on the front step of a county courthouse. At the sale, the property is publicly auctioned to the highest bidder, who must pay the high bid price in cash.

4. After the payment has been made, the winner receives the trustee’s deed to the property.

FORECLOSURE TERMS

Adjustable-rate mortgage (ARM): A mortgage that features predetermined adjustments of the loan interest rate at regular intervals based on an established index. The interest rate is adjusted at each interval to a rate equivalent to the index value plus a predetermined spread, or margin, over the index. This is usually subject to rate caps and other considerations.

Foreclosure: A situation in which a homeowner is unable to make principal and/or interest payments on a mortgage. The lender — a bank or building society, for example — can seize and sell the property as stipulated in the terms of the mortgage contract.

Notice of Default: A notification given to a borrower stating payments have not been made by a predetermined deadline. It dictates that if the money owed — plus an additional legal fee — is not paid in a given time, the lender may choose to foreclose and auction the borrower’s property. Others who may be affected by a foreclosure may also receive a copy.

Real Estate Owned: This term is frequently used by lending institutions as applied to ownership of real property acquired for investment or as a result of foreclosure. It refers to property owned by a lender — usually a bank — after an unsuccessful sale at a foreclosure auction. This is common because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank: The minimum bid in most foreclosure auctions equals the outstanding loan amount, the accrued interest and any fees associated with the foreclosure sale.

Subprime Loan: A loan is offered at a rate above prime to individuals who do not qualify for prime rate loans.

Trust Deed: A common way to structure real estate purchases, where the title to a property is held in trust until the loan for the property is paid.

Source: financial-dictionary.thefreedictionary.com


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