ABC's of Real Estate Foreclosures

I have been getting bombarded with questions concerning foreclosures, so I decided to start a blog series of the subject. First I want to address some of the terms and move on from there to the deeper inner workings on the subject.

Default:

A contract goes into default, or a default is said to occur, when the borrower fails to make the scheduled payments to the lender, Frequently, missing two consecutive payments will be enough for the lender to declare the loan in default.

Foreclosure:

A foreclosure is said to occur when the lender, feeling that he has no other choice, takes away by legal means the right of the borrower to repay the debt or to make up the missed payments.

Contract:

A contract is the agreement between the borrower and the lender defining the terms of the loan and specifying what is to happen in the event that the terms of the contract are broken. In the U.S. there are two types of contracts commonly in use.

One is called a Mortgage Contract and the other, a Contract for Deed or Deed of Trust. Most states use one or the other although there are some states that use both.

While each type of contract may differ in detail, both are based on the borrower pledging the home as security for the amount of the loan.

If the borrower fails to repay the loan on schedule, the home ownership is transferred the the lender. The Mortgage Contract used in some states, consists of two parts- the Mortgage Contract and a Promissory Note, The Deed of Trust contract, more standardized and more commonly used, also consists of two parts- a Trust Deed and a Trust Note.

You will need to know which type of contract is used in the area where you wish to buy your bargain home.