Foreclosure of real estate is a legal means available with a lender to take back possession of a home they have financed in the case of failure of the borrower to comply with a mortgage. A deficiency judgment is likely to be pursued in case the property is worth less than the amount owed to the bank or any other creditor.

The foreclosure process

The process of initiating real estate foreclosure procedure is straightforward. When a home owner repeatedly fails to pay his monthly mortgage, the lending bank issues a notice to him and the local government about delinquency of the loan. Permission is subsequently given to the bank to auction off the property to recover the loan amount.

A home owner is expected to respond to the court notice on foreclosure within 28 days. Failure to do so invites a ‘default judgment’ and an order to have the house sold for repaying the debts.

Home owners are also known to frequently sell their property at a discounted price to private parties to preserve their equity and free themselves from the debt trap.

Increase in real estate foreclosure cases

Foreclosure instances in real estate differ from state to state with the highest number of cases reported from cities like Cleveland and Detroit, primarily because of the depressed state of the economy. On an average, for every 100,000 residents in the US, there are instances of 29 foreclosures. Detroit leads with one foreclosure for every 21 households, followed by Atlanta with a ratio of 1:23. Foreclosure filing increased 27% during the first quarter of 2007 over the previous quarter to reach a staggering figure of 430,000.

Sub-prime lending blamed for foreclosure

It is common for home owners to face payment difficulty when the mortgages change to variable rates of interest from the fixed rates it started with. The most common reasons though are attributed to loss of earning or life.

Stopping foreclosure real estate

There is a move on the part of the banks and investors to prevent foreclosure through various solutions and cures and efforts to help borrowers repay their loans. Apart from social pressures this is being done to save thousands of dollars normally spent on foreclosures.

Borrowers are often offered a loan modification or repayment plan to get out of the situation. Short refinance, which involves forgoing a part of the loan and refinancing the balance in the form of a fresh loan, is another option.

With these options open, the house owner should also take the following steps to avoid foreclosure:

• Notify your lender as soon as you foresee any payment problems
• Pay attention to lenders’ call, letters, messages and try to act on them
• Try to pay a lump sum amount and buy time till payment position can be brought up to date
• Still if catching up on old dues is not possible try selling the house to a private party to avoid foreclosure

Apart from affecting the home owner’s creditworthiness, real estate foreclosure disturbs the psyche of the neighborhood and the community as a whole.