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Default
Borrower fails to meet a duty imposed upon him by mortgage, deed of trust, or promissory note
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Workouts
Lenders non-foreclosure response to a default
- Process:
- 1. garther loan docs
- 2. review loan docs
- 3. determine borrowers legal remedies
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Loan Modification
Reduce or suspend payment
extend repayment
reduce or eliminate accured interest
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Voluntary Conveyance
borrow transfers title to lender to satisfy loan default
passes existing lines on (liens junior to the mortgage survive)
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Short Sale
Borrowre sells to 3rd party, with lenders consent, for a price LESS THAN amount owed on loan
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Foreclosure
Terminates borrowers claim of ownership
2. Eliniates junior-priority liens (Lender sells title free and clear of liens)
- 3. Lender must:
- Sue on promissory note or
- foreclose on mortgage
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Judicial Foreclosure
Mortgage required to follow procedural requirements (otherwise foreclosure doesn't occur)
- Process:
- 1. File and serve compliant
- 2. Trail of foreclosure sale
- 3. Order foreclosure sale issued
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Redemption Rights w/ Foreclosure
Equity Redemption: prior to sale, borrower can redeem the property. Pay default+interest+foreclsoure cost+all other costs
Statutory Redemption: After foreclosure, borrower can redeem property within certain time frame after foreclosure sale
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How courts can invalidate a foreclosure sale
1. Shock the conscience standard: due to fraud, sale price is unjust
2. Gross Inadequacy Standard: Price is shown as result of mistake, surprise, or some irregularity
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Foreclosure by Power of Sale
1. Lender foreclose without court
- Process:
- Record notice of default
- set sale date
- trustee sale
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Redemption Rights for Trustee Sale
Equity redemption rights: available up to several days before sale
statutory right of redemption: no right of redemption post sale of property
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priority of distributing forceclosure sale proceeds
- 1. Property tax lien
- 2. costs of foreclsore
- 3. PMSI
- 4. First priority debt
- 5. Second and third priority debt
- 6. Surplus distribted to owner foreclosed on
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Deficiency Judgement
proceeds from sale insufficient to pay debt, lender can sue the owner for balance
Only party foreclosing can receive deficient judgement
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When are deficiency judgments not allowed
- Purchase Money Mortgages
- 1. Borrowed funds used to finance the purchase of the property
2. FHA, vA, and Refiannces CAN have deficiency judgements
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Home Affordiability Refinance Program
1. If current on payent, but unable to refinance bc of declining home value
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Principal Reduction alternative
- 1. HARP-eligible borrower
- 2. owe more than home is worth
- 3. obtained mortgge before 2009
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Home Affordable Modification
- 1. Employed homeowners
- 2. have defaulted
- 3. reduce mortgage payments to 31% of gross income
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Home affordable Unemployment program
1. HAMP for unemployed. Reduced payment to 31% of unemployment income
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Home Affordable Foreclosure Alternatives
- 1. Unable to keep up with HAMP
- 2. allows short sales and deeds-in-lieu for homeowners
3 lose home, but Waives Deficiency Judgment
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