Better brush up:
Foreclosure has many stages and all of them are very litigious. When listing a property in danger of foreclosure or selling one to a buyer that already has foreclosed, it pays to have your vocabulary expanded.
Before foreclosure:The forced sale of property pledged as security for a debt that is in default. or even PRE-foreclosure:the homeowner is in default and has been warned, but can still rectify the situation the homeowner must fall into the state of: Default, a mortgage or deed of trust is said to be in default when the borrower fails to make the payments as agreed to in the original promissory note.
Once a homeowner is in default there are processes and actions the homeowner can take to avoid losing their home.
Pay off the default. This can be done in a lump sum and if the lapse was due to a temporary concern then they may want to explore a loan to accomplish this. It can also be done through a work out with the lender, which is usually a payment plan over the course of a few months.
Sell their home. This is where the short sale:(a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold) issues may crop up, especially if they purchased the property during the peak of market values. This is extreme, but will help them to save their credit. I encourage people in distress to try to let go of the emotions attached and instead of looking at selling the home to avoid foreclosure they should think of it as a “do over” or a fresh start.
The final choice, and one that is only used at the very tail end of the foreclosure process is the Deed In Lieu of Foreclosure. This is when borrowers voluntarily convey their rights in a property to the lender. There is a small benefit to the homeowners credit if they do this instead of allowing the complete foreclosure process to occur.
No one wants to lose their home to foreclosure, but if the homeowner takes advantage of the pre-foreclosure time they can try to work out a more favorable solution. Allowing the home to fall into foreclosure is never the best solution.
For a complete glossary of foreclosure terms visit: United States Foreclosure Law
If you would like to read of my personal travails in the world of foreclosures visit my distressed home sales blog.