Bank foreclosure

by Roxanna Guinan, Contributor

The substantial rise in bank foreclosures in the past few years has been a major contributing factor to the economic meltdown. Bank foreclosures have certainly become an epidemic, as the rate of mortgage delinquencies surged past 9.2% in May 2010. In addition, during the first half of 2010, over 500,000 homes nationwide became victims of bank foreclosure. These foreclosures are experienced by people in all income levels ― from lower-earning families to the wealthy.

In general, if a borrower misses 2 months of mortgage payments, their loan is considered to be in default (or "delinquent"). The bank will contact the homeowner to determine why the payments weren’t made, and to get them current on their mortgage loan. If the borrower does not catch up on their missed payments in a timely manner (usually within 30 days) and get back-on-track with their loan, the bank may begin foreclosure proceedings and later reclaim the property. The bank will file a public “Notice of Default” announcing that the property is now in the process of being foreclosed.  The bank will also hire a prosecuting attorney to represent them, and to ensure that the foreclosure process is handled properly.

When the foreclosure process is complete, the bank usually sells the property and uses the proceeds to pay off the remainder of the borrower’s mortgage loan (as well as any related legal costs that were incurred).   If the sale of the property does not generate enough money to cover the mortgage, the bank may seek a “Deficiency Judgment” ― a court order authorizing the lender to collect the amount still unpaid on the loan. This means that the borrower could still owe money to the bank, if the bank cannot recover all the costs associated with their loan default.

In the past few years, borrowers have seen their home values drop below what they originally paid for the property, and even below what they owe the bank on their mortgage. Many homeowners have elected to simply walk away from their mortgage loan obligations ― fearing that the value of their property may never recover, or unable/unwilling to continue making payments on an “upside down” mortgage ― which allows the bank to foreclose on the property.

Like an up-and-down stock market, bank foreclosures are devastating for many homeowners. But for others (e.g., homebuyers), bank foreclosures have created incredible buying opportunities and rock-bottom home sale prices.