Guidebook to Fighting Foreclosure

What Lies In Your Debt?

If you are like millions of Americans who are behind on their mortgage or thinking about doing a strategic walk out, behind on their credit cards, or just being harrased by debt collectors, then this system is for you. Fraud involving mortgage loans, and/or foreclosure proceedings are increasingly less tolerated by courts. In addition, some mistakes and fraud actually violate laws and your rights as a homeowner and consumer under the Tila, Respa, and by State and Federal Acts. We have even seen cases where the mortgage did not match the note. That fact alone can stop the foreclosure dead in its tracks. In other cases, the transfer of rights in the property was not properly executed in the mortgage which leaves the bank with an unsecured credit line. There are many factors which makes almost all foreclosures illegal. If you are not aware of these factors you are walking away and losing your home for no good reason. Read more here...

What Lies In Your Debt Overview

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The Layman's Guidebook To Fighting Foreclosure

This Book Features The Latest Strategies And Tactics To Help Homeowners Defeat Foreclosure. It contains almost 50 chapters explaining everything you will need to know, including the latest tips, tactics, and strategies in use today, as well as some things you can do if you have already lost your home to foreclosure. Just some of the things you will learn are: How the foreclosure process works. Why you may not be in default even if you have missed payments. New strategies for todays foreclosure environment. Why you may not owe the money in the first place. Why some courts have awarded homeowners in foreclosure their homes free and clear of a mortgage. How to get the bank to beg you to modify your loan. Why some banks have given up on trying to foreclose on informed homeowners. How to get the bank to pay you to leave your home. How you may be eligible to get back all of the money you have paid the bank over the life of your loan. How to reverse foreclosure in some cases.

The Laymans Guidebook To Fighting Foreclosure Overview

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What You Should Know About Foreclosures

Foreclosure is the ultimate penalty for property owners who default on their mortgaged obligations. The true health of the national economy can often be measured by its foreclosure rate, the percentage of homeowners falling into default and foreclosure. This is particularly true in America, where great emphasis is placed on homeownership. There are many reasons why mortgage borrowers fall into foreclosure . They may have bit off more than they could chew and obtained a loan they couldn't afford. Most who face foreclosure do so because a dramatic event has occurred, which has affected their ability to make payments, such as job loss, health problems or major emergency. Investors who face foreclosure often do so because they miscalculated, though occasionally mismanagement may be the cause. Regardless of the cause, the foreclosure process is a stressful and drastic event for most property owners, especially homeowners. Depression and despair are common results of foreclosure . But the...

Buy carefully at a foreclosure sale

When a lender fails to work out a loan in default, the property ends up on the courthouse auction block. Typically, experienced foreclosure specialists who accurately calculate risks win at this game. Yet, it's true you must start somewhere. If you get to know the condition and value of a property by talking with its owners in preforeclosure workout discussions that eventually failed to secure a deal, consider bidding at the public auction. Bidders who thoroughly prepare can walk away with great bargains, but not great financing. Most foreclosure sales require cash. To buy, you'll need wealth, a ready line of credit, or a money partner. As it turns out, the foreclosing lender often wins the auction because no investor stepped forward with a bid high enough to pay off the lender's lien.

Buying Foreclosure Properties

You've seen those infomercials about buying foreclosure properties and uplifting introduction music and glossy materials on how to profit from foreclosure There are bargains to be found in purchasing distressed properties at foreclosure sales, especially if you know how the system works. This article will review the foreclosure procedure and how to prepare and shop for potential investments.

Deed in Lieu of foreclosure

A real estate deed used to convey title to a property from the current owner to the owner's lender or creditor. This deed is normally used when the current owner is in default or foreclosure proceedings. By voluntarily surrendering the property, both parties avoid the costs and delay of further legal proceedings. The lender receives title without going through the usual court and auction process in exchange, the loan is terminated. Similar to the power of sale clause, this is a type of non-judicial foreclosure . For more information, see the All About Deeds and Everything You Need To Know About Foreclosures articles in the Real Estate In-Depth section.

Delinquencies and Foreclosures

Delinquencies and foreclosures have skyrocketed to the point where, as shown in Figure 3.2, nearly 8 percent of all U.S. mortgages were affected as of year-end 2008, an all-time high since the Mortgage Bankers Association started tracking this in 1972. This represents more than four million homes and roughly 1 trillion of mortgages. And the problem is rapidly getting larger, as in January 2009 alone more than 30 billion in Figure 3.2 Total Delinquencies (Seasonally Adjusted) and Foreclosures Figure 3.2 Total Delinquencies (Seasonally Adjusted) and Foreclosures mortgages defaulted and 274,000 homes received a foreclosure-related notice (default notice, auction sale notice, or bank repossession). The rate of monthly foreclosures has more than tripled since the peak of the bubble, as shown in Figure 3.4 . RealtyTrac.com estimates that over 1.5 million bank-owned properties are on the market, representing around one-third of all properties for sale in the United States. While the number...

Foreclosure Purchases and Buyers Conscience

A seldom addressed issue when buying foreclosure properties is the buyer's conscience (if you have one) bothering him or her about pushing people out of their home. Some people probably deserve to lose their home. Unfortunately, many people who face foreclosure do so because of a job loss, family crisis or widespread economic downturn.

Foreclosure Procedure

There are many reasons that lead a homeowner to loan default and foreclosure. A drop in income, an increase in housing costs or bills, or just biting off more than the borrower can chew can all lead to foreclosure. on the promissory note, that defaults activates the mortgage or security agreement. It is the mortgage or security agreement that gives the lender the right to foreclose on the property. The lender cannot exercise this foreclosure right unless the borrower defaults on the promissory note. Even after a borrower defaults, the property remains in the homeowner's name. The path leading to foreclosure normally proceeds as follows 4. Foreclosure notice. If the lender's collection attempts still prove futile, the lender can then file for a foreclosure judgment from the court. Borrowers often will still have the option to reinstate their loan but at a greater cost. 5. Foreclosure judgment. After a foreclosure period of at least 60-90 days, the court will issue a foreclosure notice...

Locate a foreclosure pro

When you identify several advertised foreclosure specialists, give each one a call. Learn their backgrounds. Do they only dabble in the field of REOs and foreclosures, or do they make this field their full-time business When I telephoned an REO specialist in Orlando, he talked with me for an hour and a half about property availability, financing, purchase procedures, hot areas of town, rehab potential, estimating repair costs, portfolio lenders, strategies for buying and managing properties, selecting tenants, and a dozen other related topics. At one point during our conversation, he asked, I'll bet you haven't talked to any other agents who know as much as I do about REOs and foreclosures, have you I've been doing this 23 years. Last year, I sold 90 houses and rehabbed 16 others for my own account. Pretty impressive This agent represents the kind of pro you want to find. Although many agents claim expertise in REOs and foreclosures Sure, I can do that for you only a few actively work...

Empirical Analysis of Delinquency and Foreclosure Determinants

In this section we investigate to what extent a logit regression model can explain the high levels of delinquencies and foreclosures for the vintage 2006 mortgage loans in our database. The regression coefficients are assumed to be constant over time, which allows us to interpret the time variation in the regression error term. All results in this section will be based on a random sample of one million first-lien subprime mortgage loans, originated between 2001 and 2006. where the event is either delinquency or foreclosure of a subprime mortgage loan after a given number of months (x) 1 (1 + exp( x)) is the logit function X is the vector of explanatory variables, including a constant and 3 is the vector of regression coefficients. We will report the following statistics for each Table 2 provides the definitions of the dependent and independent (explanatory) variables used in the empirical analysis. We use either the delinquency or the foreclosure dummy variable as the dependent...

Negotiate a preforeclosure workout

But rather than effectively deal with their mortgage problem as soon as trouble hits, most owners hang on too long hoping for a miraculous rescue. Because miraculous rescues rarely occur, most of these people end up facing foreclosure. At that point, you maybe able to help these potential sellers salvage their credit score and part of their equity and at the same time secure a bargain for yourself. Faced with pressures of time and money, these property owners may accept a quick sale at a price below market value. The sellers' lender may even let you assume their existing mortgage on favorable terms. Because lenders lose money on foreclosures, the lender will review offers that credibly promise to improve its current doomed position. 8 Secret s 75-81 address foreclosures and REOs. My book, Investing in Real Estate, 5th ed. (John Wiley & Sons, 2006), explains their profit potential more thoroughly. Also, you might listen to my audio book, Goldmining in Foreclosures, Trump University,...

Approach Owners with Empathy

No magic system succeeds with owners who face foreclosure. Such owners contend with financial troubles, personal anguish, and indecisiveness. In addition, they probably have been attacked by innumerable foreclosure sharks, speculators, bank lawyers, and recent attendees of get-rich-quick foreclosure seminars. These owners are living with the public shame of failure. For these reasons and more, they are not easy people with whom to craft a deal. Yet, if you develop a sensitive, empathetic, problem-solving approach with someone suffering foreclosure, you may strike a win-win agreement but play fair. Other potential buyers will pay them a visit. A Here's my offer take it or leave it approach will anger the owners. It will not distinguish you from the dozen foreclosure sharks who try that ploy.

Buy and finance directly with a lender

When a mortgage lender wins the bid at a foreclosure auction, the foreclosed property ends up as an REO. If the lender can't turn the property over to HUD, VA, or other guarantor, it will sell to a homebuyer or investor. As stated a few pages back, most lenders list their REOs with a Realtor, but some will negotiate directly with homebuyers and investors. Safer Than Buying at the Foreclosure Sale To buy direct from a lender typically presents no more risk than buying direct from any other property's owner.9 You can buy an REO much more safely than you could have bought the same property at its foreclosure sale. Depending on the lender's motivation, its internal policies and procedures, and the property LTV at the time of the foreclosure sale, you might buy below market price. Let's say the market value of a property at the time of its foreclosure sale was 585,000. The lender's liens against the property totaled 560,000. To win the property away from the lender at the foreclosure sale,...

Figure Realtor Ad for HUD Homes

If the past forecasts the future, the next several years will produce a strong need for rescuers. To build equity wealth fast, or perhaps to increase your affordability, ask foreclosure specialists whether borrower defaults, foreclosures, and REOs are piling up in your area. Although you can save big with seller financing, foreclosures, and REOs in all times and places soft markets spell buyer's delight.1 Yet, as high tide rolls in, many would-be buyers fear to even dip their toes in the water but if you're willing to take the plunge when others shiver in a blanket of worry, you will earn a gold medal.2 Now let's look at these lesser-known property finance possibilities in more detail. 2During the previous high tide of foreclosures and tough times in California (1993-1996), my books of that day went firmly against the accepted opinion that homes were no longer a good investment. I strongly urged homebuyers and investors to take advantage of the amazing buying and financing...

Property owner rights

As mentioned above, the current property owner does have several rights and protections during this tax foreclosure period. During this redemption period, the property still belongs to the original owner and NOT the investor. The investor receives full foreclosure rights after the redemption period has passed. Even then the property stays in the original owner's name until the foreclosure proceedings have been completed and the tax deed is issued to the investor.

Banks and Mortgage Lenders

To look at, on loans in production that were years old was positive. Adam Davidson, National Public Radio As we now know, they were using the wrong data. They looked at the recent history of mortgages and saw that the foreclosure rate was generally below 2 percent. So they figured, absolute worst-case scenario, the foreclosure rate may go to 8 or 10 or 12 percent. But the problem with that is there were all these new kinds of mortgages, given out to people who never would have gotten them before. So the historical data was irrelevant. Some mortgage pools, today, are expected to go beyond 50 percent foreclosure rates. Even if a loan defaulted, the lenders didn 't think they'd suffer any losses, for two reasons Either they had sold the loan to someone else or they assumed that home price appreciation would bail them out. When home prices are rising rapidly, almost no borrowers default, because anyone in trouble can simply refinance. And, even in the event of a default and foreclosure,...

D Soldiers and Sailors Relief

The Soldiers and Sailors Relief Act affects mortgages in several ways. One provision states that the court in which foreclosure action appears has the right to stop proceedings in which a civilian mortgagor, after induction to the military, is unable to comply with the mortgage agreement. For example, a mortgagor might be unable to meet his payments due to a reduction of income after entering the military. Another provision states that the mortgagee can collect a maximum of 6 interest while the mortgagor is in the military, unless the mortgagor's ability to pay is not affected by his military status.

What should you do when you cant pay your mortgage

If you have substantial equity in your house, the least-costly action to the lender may be foreclosure. While foreclosure is costly, the lender is entitled to be reimbursed from the sales proceeds for all foreclosure costs plus all unpaid interest and principal. While foreclosure makes the lender whole, it is a disaster for you. Your equity is depleted, you incur the costs of moving, and your credit is ruined. Hence, you must avoid foreclosure, if necessary by selling your house. Little or No Equity. If your financial reversal is temporary and you have little or no equity in your property, it will be easier to persuade the lender to offer payment relief. With no equity, the foreclosure alternative is more costly to the lender. or a deed in lieu of foreclosure. In the first, you sell the house and pay the lender the sales proceeds while in the second the lender takes title to the house. In both cases your debt obligation usually is fully discharged. (They do appear...

Including Terminated Loans

For the regressions in Section 3 we used as dependent variable the probability that a loan of a particular age is delinquent or in foreclosure, conditional on the loan not being terminated (prepaid or defaulted) before that age. Since the focus in this paper is on young loans (age below 24 months), we do not expect terminations to play an important role for the questions we address. We confirm in this subsection that our main results are robust to explicitly taking into account terminations. We re-estimate the results presented in Table 3 analyzing the effects of loan characteristics, borrower characteristics, and economic circumstances on the probability of delinquency and foreclosure but this time include loans that are terminated prior to the moment of loan performance evaluation. (or in foreclosure, or real estate owned), or terminated due to default. We define a loan terminated due to default when the month prior to termination the loan was in foreclosure or real-estate owned....

Non Stationarity of the Loanto Value Effect

The logit regression specification used in Section 3 assumes that the regression coefficients are constant over time. That is, the effect of a unit change in an explanatory variable on the delinquency or the foreclosure rate is the same in, for example, 2006 as it is in 2001, holding constant the values of the other explanatory variables. We test the validity of this assumption for all variables in our analysis by running cross-sectional OLS regressions for each calendar month from 2001 to 2006 and checking the stability of the regression coefficients. It turns out that the strongest rejection of a constant regression coefficient is for the CLTV ratio. In this section we first discuss this finding and then turn to the question of whether lenders were aware of the non-stationarity of the loan-to-value effect, by investigating the relationship between the loan-to-value ratio and mortgage rates over time.

You can buy with little or nothing down

Nevertheless, even though you can buy a property with little or nothing down, first realistically (even pessimistically) critique your patterns of spending, borrowing, and saving. No cash, no credit, no problem may get you the financing you want, but it won't keep you out of foreclosure. Prudence dictates cash reserves. Do not merely buy a property you want to own it until you sell on your own schedule. Unfortunately, experience shows that little or nothing down borrowers suffer foreclosure at rates 4 to 10 times higher than borrowers who make a down payment of at least 20 percent. Play it safe. Budget carefully. Allow for the unexpected.

Search for Good Value

After you've located 203(k) advisors who know what they're doing, search for a property that offers good value for the money. In Quentlin Henderson's case, his Realtor found him a bargain-priced, six-year-old house that was in a sorry state because its former owners had abandoned it as a result of foreclosure. The good news for people who buy such houses, says HUD FHA's office in Orlando, is that purchase prices are generally low so that after repairs are made, the home's new value often produces instant equity.

VA offers REO deals with financing to veterans and nonveterans

You cannot directly negotiate with or submit a bid to VA. You must submit your bid through a VA-approved real estate agent (your foreclosure pro). 2. VA offers investors favorable terms of financing. In my area, for example, investors can close financing on a VA home with total cash out of pocket of less than 6 percent of a property's purchase price. In addition, VA typically applies relaxed qualifying standards. VA buyers (who need not be veterans) must show acceptable, not perfect, credit records. For REO listings and procedures, talk with a foreclosure pro or follow the link to VA REOs from the hud.gov web site.

Residential Lease With Option

The said Lessees hereby pledge and assign to the Lessors all the furniture fixtures, goods and chattels of said Lessees which shall or may be brought or put on said premises as security for the payment of the term herein reserved, and the Lessees agree that the said lien may be enforced by distress foreclosure or otherwise at an election of the said Lessors, and do hereby agree to pay attorney's fees of ten percent of the amount so collected or found to be due, together with all costs and charges therefore incurred or paid by the Lessors.

Loanto Value Ratio and the Mortgage Rate

The combined LTV ratio rather than the first-lien LTV ratio is believed to be the main determinant of delinquency and foreclosure, because it is the burden of all the debt together that may trigger financial problems for the borrower. In contrast, the first-lien LTV is the more important determinant of the mortgage rate on a first-lien mortgage, because it captures the dollar amount at stake for the first-lien lender.14

Subprime Mortgage Crisis Introduction

The subprime mortgage crisis of 2007 was characterized by an unusually large fraction of subprime mortgages originated in 2006 being delinquent or in foreclosure only months later. The crisis spurred massive media attention many different explanations of the crisis have been suggested. The goal of this paper is to answer the question What do the data tell us about the possible causes of the crisis To this end we use a loan-level database containing information on about half of all U.S. subprime mortgages originated between 2001 and 2006. The relatively poor performance of vintage 2006 loans is illustrated in Figure 1. At every mortgage loan age, loans originated in 2006 show a higher delinquency rate (left panel) and a higher foreclosure rate (right panel) than loans originated in earlier years at the same ages. Note that 2001 was a fairly bad vintage year as well, ranking second, both in terms of the delinquency and the foreclosure rates. Figure 1 Actual Delinquency and Foreclosure...

HUD may hold the keys to your home or investment property

Each year, FHA insures hundreds of thousands of new mortgage loans. (The total number of these outstanding FHA mortgages runs into the millions.) When FHA borrowers fail to repay their lenders as scheduled (absent a successful workout), the owner of the mortgage will force the property into a foreclosure sale. Then (speaking generally) the lender turns in a claim to HUD (FHA's parent). HUD pays the lender the amount due under its mortgage insurance coverage and acquires the foreclosed property. HUD puts the property, along with all the others it has acquired, up for bid to the public. To buy a HUD property, submit a bid package to HUD according to set procedures. Violate a rule, and your bid package is tossed out. That's why you need a foreclosure pro. After HUD opens the bid package, it accepts the bid that nets HUD the most money except that homebuyers receive priority over investors even when the investor submits a bid that HUD thinks superior. HUD sets bid deadlines that give...

Buying Subject to Assuming Without Consent

If the lender learns of the sale, it might mail the seller a nasty letter and demand a very large check. With the loan called due, someone would quickly need to pay off, refinance, or negotiate a settlement with the lender. Weak borrowers who can't come up with the cash, credit, or negotiating power to satisfy the lender face foreclosure. The buyers may lose the cash they've invested in the property. On the other hand, if you are financially strong enough to deal with this call potential, your risks are low. You simply refinance (obtain a new loan). Not so with subject to transfers. In those cases, the seller's credit and finances remain at risk for as long as the mortgage remains outstanding. If the buyer pays the mortgage late, the lender forwards scurrilous remarks about the seller to the credit bureau. If the property goes into foreclosure, the lender will chase down the seller for any money (deficiency) judgments the court awards it.

List of Illustrations

And Q2 2008 That Were in Foreclosure 89 Subprime Mortgages Entering Foreclosure Foreclosures Are Nothing New of Foreclosures since 2006 92 Early Problems Foreclosure Rates of Subprime Cumulative Foreclosures through September Cumulative Foreclosures through September Figure 5.39 Drivers of Foreclosures Strong Appreciation or Foreclosures Highest for Areas with Biggest Price Declines 209 Foreclosure Sales (Q3 2007-Q3 2008) 226

Measurement issues in specifying mortgage termination models

The loan-to-value ratio is in fact a rather complex variable to interpret. Measured at origination it is more likely to reflect credit market constraints. Measured at this point of time it may also reflect information asymmetry between borrower and lender, say regarding property-specific house price volatility (see Deng et al. 2000). The loan-to-value ratio may also proxy personal characteristics such as attitudes to risk. There is the possibility that the loan-to-value ratio should be treated as simultaneously determined with the default decision (see Brueckner 1994b, 1994c). So the point of time to which the measured loan-to-value ratio relates is important. There is also a need to be precise regarding when a household defaults. This is often taken as mortgages subject to foreclosure, but a property might be sold during this period and thus avoid default (Phillips et al. 1996). Ambrose & Buttimer (2000) recognise this issue and follow Kau et al. (1992) by defining default as the...

Power of Sale Clause

A provision in the mortgage deed that allows the lender to sell the property upon the borrower's default on his or her obligation, without a foreclosure suit. This is common with deeds of trust or in title theory states. The lender simply delivers and records a notice of default, and then sells the property at auction. If the selling price is insufficient, the lender may further sue for a deficiency judgment. Similar to the deed in lieu of foreclosure , this is a form of non-judicial foreclosure . For more information, see the Mortgage Deed and Promissory Note and Everything You Need to Know About Foreclosures articles in the Real Estate In-Depth section.

Credit

An informal term referring to borrowers and applicants with extremely damaged and abysmal credit, usually with credit scores below 500. The only financing hope for D-credit borrowers would be expensive non-conforming loan programs. D-grade borrowers are often currently in foreclosure , bankruptcy or repossession or have just completed such actions within the past year. Consumers can still be graded D when the foreclosure , bankruptcy or repossession is two to five years old if that consumer has not made strides in rebuilding credit. However, with proper attention to debt payments, a D-credit borrower can usually return to A-grade within five to seven years. For more information, see the Analyzing Credit Reports article in the About Loan Processing section.

Right of Redemption

The right of a distressed borrower to recover property that has been transferred from their ownership, usually during a foreclosure process. To exercise this right, the borrower will have to pay off the debt obligation. Most property owners will have both an equitable right of redemption before the tax sale or foreclosure auction and a statutory right after the sale. For more information, see the Everything You Want To Know About Foreclosures article in the Real Estate In-Depth section.

CJunior lien holders

When foreclosure begins, all junior lien holders should join in the suit. If the property sells for less than the debt, the junior lien holders can sue the mortgagor on the note. If the property sells for more than the debt, the junior lien holders are paid off out of the surplus in order of their priority, with the mortgagor receiving the balance. The purchaser of the property then receives the property free and clear of the first lien (which was foreclosed) and all liens junior to it. The only exception to this involves real estate taxes. All real estate tax liens must be paid from the foreclosure sale, or the property passes to the purchaser subject to all unpaid taxes. The purchaser must then pay the remaining taxes due or lose the property.

Lien theory

Lien theory is a more modern approach to creating loan security and is used in most states. In lien theory states, the lender is considered to hold a lien, rather than title, against the property for security of the debt. A lien is the right to have property sold to satisfy a debt. In the event of default on the promissory note, foreclosure proceedings are initiated, and the title is conveyed

Default

Failure to meet or perform a contract obligation. With mortgage loans, the lender may declare the loan in default any time after a payment becomes past due beyond the grace period. However, most lenders will not declare default until the borrower is at least one to three months behind. A default notice will activate the foreclosure proscriptions of the mortgage deed. For more information, see the Mortgage Deeds and Promissory Notes article in the Real Estate In-Depth section.

Investor Preparation

Because of the redemption and foreclosure period required, the investor must be willing to wait six to 24 months before receiving full ownership of the property. Because the investor does not own the property until after the redemption period has passed and foreclosure has been completed, the investor will be unable to obtain mortgage financing. Note, however, that tax certificates can and are routinely bought and sold after the auction. This is perfectly legal and allows investors to cash in their investments ahead of schedule. You will also find that most tax foreclosure properties tend to be in the poorer and often least marketable areas of town. Thus, the potential for immediate gain with these properties tend to be minimal.

Mortgage Insurance

Mortgage insurance, both government or privately issued, protect the lender by guaranteeing a portion of the loan amount against losses. For example, if a lender holds an 80,000 mortgage (with expenses) and sells a foreclosure home for only 75,000, the mortgage insurance would reimburse the lender for that 5,000 short-fall. FHA and VA loans are essentially mortgage insurance programs conventional loans require private mortgage insurance (PMI). With conforming loans, mortgage insurance is required whenever the LTV ratio exceeds 80 . For more information, see the Mortgage Insurance article in the Mortgage Industry section.

Title Theory

Another approach requires that foreclosure proceedings must be held, as in lien theory states. This requirement makes these states' mortgage laws equal in borrower protection to that of lien theory states' requirements. The only difference is in the formal wording of the instrument.

Defined short term

Note that a foreclosure is not required because the property never left the seller's possession. The installment contract just provided the buyer with an opportunity to purchase the title to the property, as long as the contract conditions are met. To remove a failed installment buyer, the seller would have to initiate legal eviction procedures.

Home Equity Loan

Most home equity loans are limited to 10-year, 15-year or 20-year terms. Interest rates on home equity loans tend to be higher than standard first mortgage loans, because home equity loans tend to be riskier for the lender. In the case of a default and foreclosure, the auction funds first go to pay off the first mortgage loan and all applicable legal, administrative, tax and court fees. Only the surplus will then be applied to paying off the second mortgage.

Deed of Trust

A type of mortgage deed in which a third party holds the title in trust as a security, while the borrower continues to make payments to the lender. Most residential mortgage lenders will not allow the loan to close while the subject property is in a trust. The loan programs that will close with a trust normally use a deed of trust. The borrower conveys the legal title to the trustee, who retains the property until the debt to the lender is paid in full. If the borrower defaults, the trustee may sell the subject property to satisfy the debt, without benefit of foreclosure proceedings.

Damaged credit

For all other applicants, non-conforming loan programs are available with a variety of alternative financing opportunities. It is even possible to provide refinance a home from foreclosure, as well as providing motgage financing for borrowers with recent bankruptcies. Please consult the Damaged Credit Options and Repairing Damaged Credit articles for more information. Specific articles on borrowers with bankruptcies or foreclosures are also available.

Quitclaim Deed

Quitclaims are also recommended if the grantor (seller) is unsure about the quality of the title he or she possesses. For example, if you obtained a property through a foreclosure sale or adverse possession, you may want to consider using a quitclaim deed when you sell it.

Descriptive Analysis

We first discuss the main characteristics of the loans in our database at origination. Second, we discuss the delinquency and foreclosure rates of these loans for various segments of the subprime mortgage market. In Figure 1 we showed that for the subprime mortgage market as a whole, vintage 2006 loans stand out in terms of high delinquency and foreclosure rates (for variable definitions, see Table 2). In Figure 4, we again plot the age pattern in the delinquency rate for vintages 2001 through 2006 and split the subprime mortgage market into various segments. As the figure shows, the poor performance of the 2006 vintage is not confined to a particular segment of the subprime market, but rather reflects a market-wide phenomenon. In Figure 5 we plot the delinquency and foreclosure rates of all outstanding mortgages. Notice that the fraction of FRMs that are delinquent or in foreclosure remained fairly constant at about five percent from 2005 on. These rates are consistent with those...

Defaults

Given the strong credit performance of prime conventional loans, defaults generally are ignored as a component of prepayments in conventional pools. For example, in 2004, Freddie Mac reported serious delinquencies (delinquent 90 days or more or in foreclosure) of 0.73 to 0.87 on loans in portfolios and securities, whereas Fannie Mae reported 0.57 to 0.64 . Government loans, on the other hand, experience serious delinquencies at two to three times higher rates. For example, in its National Delinquency Survey, for the second quarter of 2004, the MBAA reported a serious delinquency rate of 2.84 for FHA and 1.66 for VA loans. In addition, Ginnie Mae permits servicers to buy delinquent FHA and VA loans out of pools (at par) under certain circumstances. These loans can be rese-curitized (usually as private CMOs or Fannie Mae or Freddie Mac guaranteed securities) if the loans become current again, or reperform. As a result, servicers have an incentive to buy out eligible loans having premium...

Non Recourse Mortgage

(d) Foreclosure proceedings (whether judicial or otherwise) are instituted on any mortgage or any lien of any kind secured by any portion of the Premises and affecting the priority of this Mortgage. (a) Declare the total Secured Indebtedness, including without limitation all payments for taxes, assessments, insurance premiums, liens, costs, expenses and attorney's fees herein specified, without notice to Mortgagor (such notice being hereby expressly waived), to be due and collectible at once, by foreclosure or otherwise (c) In the event that Mortgagee elects to accelerate the maturity of the Secured Indebtedness and declares the Secured Indebtedness to be due and payable in full at once as provided for in Paragraph 2.02(a) hereinabove, or as may be provided for in the Note, or any other provision or term of this Mortgage, then Mortgagee shall have the right to pursue all of Mortgagee's rights and remedies for the collection of such Secured Indebtedness, whether such rights and...

List of Tables

For Many Foreclosures (September 2008) 93 Table 5.1 Selected Subprime Hybrid Loans in Foreclosure Foreclosure Start Rate 216 Q2 2008 That Were in Foreclosure 374 Table A.25 Delinquency and Foreclosure Start Rates for U.S. Table A.26 Foreclosure Rates (1999-Q2 2008) 378 Table A.27 Subprime Originations and Foreclosure Start in Foreclosure (Percentage of Number) 382 Table A.29 Number of Home Mortgage Loan Foreclosures Table A.30 National Subprime Foreclosure Rates by Table A.31 California Subprime Foreclosure Rates by Table A.36 Prime Mortgage Cumulative Foreclosure Starts through September 2007 by Year of Origination and Product Type (January 1999-July 2007) 404 Table A.37 Subprime Mortgage Cumulative Foreclosure Starts through September 2007 by Year of Origination and Product Type Table A.39 Mortgage Origination and Foreclosure Starts by FICO Scores Distribution (Percentage of Total by FICO Score Distribution) 413 Table A.40 Mortgage Origination and Foreclosure Starts Loan Purpose by...

Exculpatory clause

An exculpatory clause relieves the borrower of personal liability to repay the loan. Thus, if the borrower defaults, the lender can look only to the property foreclosure for recovery of the debt. In effect, the lender may not sue the borrower on the note or obtain a deficiency judgment, if sale of the property at foreclosure does not provide sufficient funds to cover the loan's balance. Obviously, borrowers prefer to negotiate loans with exculpatory clauses, but lenders are usually unwilling to allow them.

Results

Table 3 shows the results of the logit regression described in Section 3.1 with the delinquency (panel A) or foreclosure (panel B) dummy variables 12 months after origination as the dependent variables. The explanatory variables are listed in the first column. Focusing on the marginal effect of the regression coefficients, defined in Equation 2, we see that the mortgage rate is the most important factor explaining cross-sectional differences in loan performance. The positive sign means that a higher mortgage rate Delinquency Dummy Foreclosure Dummy FICO Score (-) Payments on the loan are 60 or more days late, the loan is in foreclosure, or the loan is real estate owned. The loan is in foreclosure or is real estate owned. We consider four product types FRMs, Hybrids, ARMs, and Balloons. We include a dummy variable for the latter three types, which therefore have the interpretation of the probability of delinquency or foreclosure relative to FRM. Because we expect the FRM to be chosen...

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