Understanding Foreclosure

Posted on February 22, 2009 @ 2:24 am
by Danny Thomas

It has finally happened; you have qualified for a mortgage and now you own your home. Owning a home can be great, but it is now more important than ever to understand foreclosure and what some of the terms are related to foreclosure so you can hopefully avoid it.

Foreclosures can seem complicated since there are so many different terms associated with them. Real estate agents and loan officers might know these terms like the back of their hands, but to the rest of us, it would be easy to get confused when terms start to be used.

Lien holder is another term important to understand as it relates to foreclosure. The lender, usually a bank or credit union, gives you money to finance your purchase of the home. This means there is a lien on the home. In truth, the lien holder has the power to take back the home, or foreclose on it, if you don’t keep your contractual obligations.

Acceleration or acceleration clause is also an important term to know. Most mortgage terms contain an acceleration clause these days. This is what allows the lien holder to declare the entire amount of the home as debt owed and not just the amount you have defaulted on paying.

In order to do this, there must be an acceleration clause written into your mortgage. Most lenders won’t issue mortgages these days without an acceleration clause because it protects them. If they didn’t have the ability to accelerate the loan, they could only seek to reclaim the amount you have failed to pay.

The lender might be able to get a judge to allow them to take back pieces of the land equaling the amount you have failed to pay, but this is a tedious process. It is safer for them to have an acceleration clause so that they can demand the full payment of the loan. Obviously, most people won’t be able to make the payment which then allows the lender to foreclose on the home because you owed them the entire amount of the home and didn’t pay it.

Foreclosure can seem messy. But knowing some of the basic terms will help you understand it better and understanding just might help you avoid it.

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