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Mortgage Foreclosure

Mortgage Foreclosure is the legal process a bank or other lender uses to take physical and legal possession of a piece of property whose owner defaults on the mortgage payments. All fifty states have rules and regulations that govern this process and protect homeowners from predatory lending practices and fraud. Although a bank may have an induspited contractual right to foreclose on property, a borrower should always attempt to restructure the mortgage or otherwise work with the lender, as the bank will want to avoid the lengthy and expensive foreclosure process.

A mortgage is a written contract that provides its holder a security interest in real estate. The person who borrowed money to purchase the real estate is referred to as the mortgagor. The bank that loaned the money for the purchase is referred to as the mortgagee. If the mortgagor defaults on the loan, the mortgagee is entitled to foreclose on the property, and obtain what is called a “deficiency judgement” if there is still an outstanding balance on the mortgage.

Most states conceptualize a bank's ownership interest in mortgaged real estate with the "lein theory". That is, until the balance of the mortgage is paid off, the bank has a lein on the title to the property, but is not the property's legal owner. However, some states classify a bank's interest under the "title theory", which means that the bank is the legal owner of the property until such time as the borrower pays off the mortgage in full. This is an important distinction in all existing and potential mortgage foreclosure cases. If the default occurs in a "lein" state, the bank will always have to go through a foreclosure process and re-take legal title to the property. However if the default occurs in a "title" state, the bank (as the legal owner of the property) can merely exercise its right to sell.

It is not uncommon to have more than one mortgage on a given piece of real estate. When this occurs, the law follows a "first in time" system regarding the mortgagee's rights. The first mortgage is known as the "senior" or "primary" mortgage, and all subsequent mortgages are considered "junior" or "secondary". The senior mortgage always has legal priorty over the secondary ones, regardless of the size of the debt.

Typically the mortgage foreclosure process begins with a letter from the bank demanding payment of the money owed. This is referred to as a “Notice of Default”, which is usually sent when the mortgage is three months past due. Most states also require that a bank give a mortgagor at least 30 days to cure the default before instituting formal foreclosure proceedings. Sometimes homeowners faced with mortgage foreclosure will simply choose to hand the deed to the home back over to the bank, rather than expend time and energy fighting the foreclosure process.

If the mortgage is still not paid after the notice has been sent and waiting period expired, a bank has a few different options for foreclosure. The first, and most common, is referred to as “judicial foreclosure”. In this method, the foreclosure process is overseen by a judge, who will order the property sold and the proceeds going to pay off the creditors in a pre-determined order. The second option is for the bank to offer the property up for public sale at auction. Under either alternative, a majority of states provide the homeowner a “right of redemption”, which allows them to cure the default buy paying the mortgage debt. In many states, a homeowner can exercise this right even after the bank has sold the property.

Bankruptcy

Bankruptcy is a legal process that attempts to find a fair compromise between a debtor (a person or company that has borrowed money) and his creditors (lenders) when the debtor cannot repay his loans. It has been said that the primary goal of bankruptcy law is to give a debtor a fresh start at life, and “a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt”. To that end, bankruptcy courts have the power to discharge certain debts, meaning that the debtor is released from his obligation to pay the debt, and the creditor can never attempt to collect it again, regardless of how much money the debtor makes in the future.

This is why attorneys at other professionals often refer to the process as “bankruptcy protection”. However, giving debtors a fresh start is not the only goal of the bankruptcy process. Bankruptcy Courts will also attempt to repay the creditors as fairly as possible under the circumstances. This process typically involves an evaluation of all of the debtor’s assets, and a determination of how to either: a) divide those assets fairly among the debtor’s various creditors, or b) take control of the assets to ensure that they are developed put to use in a way that maximizes their value in order to pay the creditors back over time.

All bankruptcy proceedings in the U.S. are governed by the Federal Bankruptcy Code, and are supervised by special bankruptcy courts, which are located in 90 districts across the country. The type of proceeding, and the various rights and remedies involved, depend on what chapter of the Bankruptcy Code the debtor filed under. Although there are several bankruptcy chapters, almost all bankruptcy cases come in one of two forms. Cases filed under Chapter 7 of the Bankruptcy Code are referred to as “liquidations”, and are the most common form of bankruptcy. As the term implies, liquidation involves a bankruptcy trustee, who with the Court’s authority, seizes the debtors non-exempt property, and sells it to pay off the debt(s). Cases filed under other relevant Chapters involve a court-supervised “rehabilitation” of the debtor’s assets, in order to eventually create future earnings that can be used to repay the creditor. Filing for bankruptcy automatically “stays” outside collection actions against the debtor. This means that in most cases, once a bankruptcy petition is filed, creditors cannot attempt to collect their debts outside of the proceeding itself. Similarly, the debtor is not allowed to transfer any property that has been declared part of the estate under those proceedings. In the event that a debtor does attempt to transfer any such property, a bankruptcy trustee has the power to go back and undo the transfer for the benefit of the creditors.

Although theoretically all of a debtor's property is evaluated to structure a payment plan, federal and state law have exempted certain property from repossession. Houselhold items and other personal effects such as clothes and food can not be liquidated by creditors. This rule is designed to keep debtors self-sufficient and off of public aid. On the other hand, there are also certain debts that the bankruptcy code forbids from being discharged for public policy reasons. Child support and alimony, certain tax obligations, and student loan debts are all examples.

Bankruptcy has many pros and cons that must be considered by debtors before utilizing it. In the best case scenarios the debtor will be put on a reasonable repayment plan, perhaps having some or all of the debt discharged completely. Leins and wage garnishments are automatically suspended, and creditors who would otherwise have a right to a lein will not be able to obtain one, and many existing leins may be eliminated. Depending on the situation, the debtor may be able to keep his home and most of his property, creating a condition referred to as a "debtor in possession". In some business bankruptcies the business is allowed to keep control of its assets and continue to operate normally, free to make a profit without ever having to pay the discharged debts.

However, bankruptcy is not always the best option. Debtors who attempt to file must be familiar with the bankruptcy code, and file appropriately or risk dismissal. It is also extremely damaging to the debtor's credit rating. Federal law permits credit agencies to report bankruptcies for up to ten years, and all of them do. In addition, once an individual files for Chapter 7 protection, they cannot do so again for another six years. This means that if the debtor runs into trouble again within that time frame, they will be forced to repay the debt, no matter how unreasonable the terms are.

By A www.autson.com