Two Common Misconceptions Regarding Foreclosure

By: Dave Dinkel

There are many misconceptions about foreclosure. The people that lose their homes by foreclosure don't want the public to know about their personal tragedy, so the misinformation usually comes from those who hear second-hand information. The following are a couple or examples that stand out.

"Banks want to steal your home by foreclosure" is the most common belief of foreclosure victims. People involved in the banking industry will explain that this is simply not true and go on to say that banks are in the business to lend money, not own real estate. They will further explain that the Federal Reserve has strict cash reserve requirements for foreclosure properties that can be crippling to a bank's financial statement. All of this is true to an extent. The reality is that banks are happy to get your property from foreclosure if they can make a profit reselling it. This is painfully obvious when a person in foreclosure asks their lender to take back their deed "in lieu of foreclosure". If the bank feels they can make a profit, they will happily take the home. However, if they get an appraisal for less than is owed, they will seldom take the deed from the homeowner.

"I have to pay off my mortgage to keep my home" is what most homeowners believe initially because the default notice says it! When the lender "accelerates" the mortgage or deed of trust because the homeowner stopped making payments they call for the entire balance "due and payable". This does not mean that the default can't be cured by other means such as reinstatement but the language of the default notice doesn't stipulate other solutions. In certain types of foreclosures this time period to cure the default can be as much as 90 days and in other types, as little as a week. The "grace period" to cure a default is clearly outlined in the actual clauses in the loan agreement.

So banks may or may not want your home depending on the equity in your home and the financial decision of whether they can make a profit. The banks have a legal obligation to their shareholders to foreclose on delinquent loans and the bank's officers can be prosecuted if action isn't taken timely. The acceleration or default notice could include language in a separate document about the actual requirements to reinstate or cure the delinquent loan. But that is not the case currently. As a homeowner in default, your best course of initial action is to read your loan agreement and call you lender's representative for options to fix your situation.

Foreclosures
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