5/27/2017

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Why Banks Foreclose On Real Estate
by John M. Roberts

The reason banks, savings and loans, credit unions, mortgage companies, and other lenders foreclose on real estate is because they, like any other company, are in business to make money, and the money they loan has to be protected and a guarantee has to be made by the borrower that it will be repaid.

The guarantee, is in the form of a note and deed of trust that the borrower agrees to and signs, usually in escrow, before the loan funds and records.

As a borrower, it is your responsibility to pay the money back, and when you don't, the bank has the rights to retrieve the property, through foreclosure, to cover the amount that was loaned.

At the time of the loan funding, at the closing of escrow, the borrowers and the lender agree to written stipulations in the loan documents that the borrower is to make monthly payments, on time, when they are due.

It is not up to the bank or other lenders to make sure that the monthly, or other agreed upon payments, are met. Making the payments on time is totally the borrower's responsibility.

If payments are not made by the due date, which usually include a grace period, the lender will set in motion a sequence of notices and warning alerting the borrower of it's intentions if payments are not forthcoming.

  • A late payment notice is sent to the borrower when the first payment goes past due.
  • If there is no response, a second notice is sent out.
  • If a second payment is missed, and the borrower still does not respond, the lender sends out another notice and at that time, may issue a notice of default.
  • Even if you contact the lender and an arrangement to make payments are made, you are still in default until the lender receives the payments.
  • The notice of default, or the acceleration clause, is stipulated in the contract.
  • At the time of the notice of default, the lender may demand full payment of the balance of the loan, plus any late payments and legal fees.
  • If a borrower does not make an effort to pay all the outstanding late payments and legal fees, the lender will send a certified letter to the borrowers address, or have it delivered by the local sheriff's department, giving the borrower notice of the intent to foreclose.
  • The lender then publishes a legal notice in a local newspaper giving notice that an impending foreclosure is set to take place on the property. A court date is set in which all parties, the lender, borrower, and all other interested parties can attend.

Up to the point of the court date, the borrower has the right to reinstate the loan. The only other option for the borrower is to file a bankruptcy petition delaying the foreclose so the borrower can work out a plan to get his or her finances in order.

Actually, banks are not in the foreclosure business, although they do as a last resort, and they usually do all they can to prevent having to foreclose on property.

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