Unit 14 - part 4

Question 1

Foreclosure

Answer 1

Foreclosure is a legal procedure in which property pledged as security for a debt is sold to satisfy the debt. Any unpaid lienholder, can initiate foreclosure proceedings.

The property is sold free of the foreclosing mortgage and all junior liens.

Question 2

Methods of Foreclosure

Answer 2

There are three general types of foreclosure proceedings:

1. judicial foreclosure
2. nonjudicial foreclosure
3. strict foreclosure.

Question 3

Judicial Foreclosure

Answer 3

Judicial foreclosure allows the property to be sold by court order after the mortgagee has given sufficient public notice.

Question 4

Nonjudicial Foreclosure

Answer 4

In nonjudicial foreclosure, no court action is required.

In those states that recognize deed of trust loans, the beneficiary is generally given the power of sale, which is conducted by the trustee.

Question 5

Strict Foreclosure

Answer 5

In some states, a lender may acquire mortgaged property through a strict foreclosure process.

First, appropriate notice must be given to the delinquent borrower. Once the proper papers have been prepared and recorded, the court establishes a deadline for the balance of the defaulted debt to be paid in full. If the borrower does not pay off the loan by that date, the court simply awards full legal title to the lender. No sale takes place.

Strict foreclosure is more common when personal property is used to secure a debt.

Question 6

Deed in Lieu of Foreclosure

Answer 6

As an alternative to foreclosure, a lender may be willing to accept a deed in lieu (instead) of foreclosure from the borrower.

A deed in lieu of foreclosure is a deed instrument in which a mortgagor (i.e. the borrower) conveys all interest in a real property to the mortgagee (i.e. the lender) to satisfy a loan that is in default and avoid foreclosure proceedings.

This is sometimes known as a friendly foreclosure because it is carried out by mutual agreement rather than by lawsuit.

Disadvantages:

• shows up as foreclosure in credit records
• doesn’t wipe out other liens against the property

Question 7

Redemption

Answer 7

Most states give defaulting borrowers a chance to redeem their property through the equitable right of redemption. If, after default but before the foreclosure sale, the borrower pays the lender the amount in default, plus costs, the debt will be reinstated.

Question 8

Deficiency Judgment

Answer 8

The foreclosure sale may not produce enough cash to pay the loan balance in full after deducting expenses and accrued unpaid interest.

In that case, the mortgagee may be entitled to a personal judgment against the borrower for the unpaid balance.

Such a judgment is a deficiency judgment.

Some states prohibit a deficiency judgment on a purchase money loan for the borrower’s principal residence.

Question 9

Short Sale

Answer 9

Seller may still be faced with a proposed sales price that is less than the amount outstanding on the seller’s mortgage debt. In such a situation, the lender may permit a short sale in which the sales price is less than the remaining indebtedness.

As the final blow to the seller, however, the forgiveness of part of the seller’s mortgage debt has been considered by the IRS to be income to the seller/borrower and thus subject to income tax.

Question 10

Dodd-Frank Act

Answer 10

• took effect January 10, 2014
• consumer information pamphlet must be given by the lender to the borrower
• borrower can initiate a complaint if lender isn’t following the rules.

Question 11

Comprehensive Loss Underwritfng Exchange (CLUE)

Answer 11

The Comprehensive Loss Underwriting Exchange (CLUE) is a database of consumer claims history that enables insurance companies to access prior claims information in the underwriting and rating process.

The database contains up to five years of personal property claims history.