Loan Foreclosure

The word "foreclosure" can spur various thoughts and emotions in one's mind, when they first hear it. And the persons most impacted by that word, are in usually one of two camps. Those who are the ones who are being foreclosed on, and those who initiate the foreclosure. Fear and financial concern for the first camp, and a 'sort of' pay-day for the second camp.


It is a "sort of" pay-day, because; while the financial institution who is initiating the foreclosure will be enacting some form of return or settlement on their original loaned amount, whose defaulted payment(s) to them, being the root cause for initiating a foreclosure in the first place, is often a residual loss.


To be clear on what a loan foreclosure is, it is when (in simplistic terms) a loan repayment goes into default, and money that was borrowed to purchase something (a home or property) at some point can't be paid off, and the institution who lent the money who had secured a lien on that home, is in a position to do a foreclosure on the loan. They can sell the property in order to recoup as much as possible of the original amount that was lent. Often, time is of the essence, and financial institutions who have decided to foreclose, are seeking only the amount owing. Since there might already be considerable equity in the home or property already, then often the amount owing is considerably less than the total fair market value for that property. And this is where a couple of things can happen.


A loan foreclosure is as what was described above in which (at often extreme measures and cost) a foreclosure is enacted. But there are other courses of action that can preface an actual foreclosure.


Prior to an actual foreclosure, often a foreclosure loan modification can come into play. In essence, this is a situation whereby the lender and the borrower (who has defaulted on their payment schedule) have a meeting and in the proper circumstances, decide that past due amounts in default, be rolled into the unpaid principal amount of the home. This amount then becomes amortized over a new repayment schedule. Basically it is like a mutually agreed upon loan extension date. This type of new loan has many benefits to all involved if it is considered to be the desired form of action. This, of course, is determined on an individual case by case basis. It will work for those customers who still have ability to keep up their payments, but originally fell behind due to; often a temporary situation, be it a job loss or even an illness that has compromised their earning potential for that term, but are now in a position to continue paying. It could also involve an entirely new customer (borrower) who will continue with a new foreclosure loan modification.


With this situation, a foreclosure loan modification can benefit certain parties. The financial institution would have fewer hoops to jump through (read paperwork and other legalities involving court appearances etc., in order to continue to ensure their original loaned amount is repaid, since they already have a customer whose credit rating they know. And by approving this type of new loan, are also in a position to add further profit to their original contract, on the basis that any loan that becomes paid off eventually, still supports the numbers needed to show their percentages made on the original loan. This is a better scenario for them than enacting a foreclosure, which technically could still leave them with a balance in the red. Financial institutions who have a reduced record of foreclosures, also exhibit a track record of having made good and prudent investments. This can bode well for them if you or others later have money that they want to invest. It makes sense to invest in an institution that can run a business of profit, amicably, rather than force issues in a court of law.


And of course the benefits for the borrower of this type of loan are numerous. Primarily, they don't lose the original equity they had in their home, and are able to continue on in the same location and neighborhood where they were already established. This also protects their credit rating in a world where having a strong credit score can open more doors for those who know how to manage their credit responsibly. There are other benefits that reflect all the way down to society itself in that in a case that turns out in a way that doesn't include a foreclosure, then there is a greater chance that that family doesn't end up being a tax to their neighborhood in the form of social assistance. The fewer the residents that don't meet their financial responsibilities, the better able that neighborhood is to prosper and grow. Alternatively, if a new customer undertakes the foreclosure loan modification, then they can be in a position of owning a home with often none or very little down-payment.