An Overview of Foreclosure: Its History, Types, Process & Available Remedies (excerpted from The FREE Online Resource Center for Beginning R.E. Investors)
Rey Villar (GMail)
There are many reasons why mortgage borrowers fall into foreclosure . They may have bit off more than they could chew and obtained a loan they couldn't afford. Most who face foreclosure do so because a dramatic event has occurred, which has affected their ability to make payments, such as job loss, health problems or major emergency. Investors who face foreclosure often do so because they miscalculated, though occasionally mismanagement may be the cause. Regardless of the cause, the foreclosure process is a stressful and drastic event for most property owners, especially homeowners. Depression and despair are common results of foreclosure .
But the truth is that property owners facing foreclosure have many tools and options available to them. Foreclosures can be fought and reversed, and borrowers have the right to redeem their property-even after the foreclosure sale in many states.
The two biggest obstacles preventing distressed borrowers from successfully fighting (and surviving) foreclosures are lack of knowledge and lack of hope. This article seeks to provide the knowledge; from there, we trust that the borrower can and will find hope. This article will approach this task through four sections:
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History of mortgage foreclosures
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Types of foreclosures
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Foreclosure process
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Relief against foreclosure
History of Mortgage Foreclosures
A more thorough discussion of mortgages can be found in the "Mortgage Deeds and Promissory Notes" article. The focus in this article will only be on the foreclosure portion of mortgages. The wider legal battle over foreclosures has seen an ebb and flow between the rights of the mortgagor (borrower) and mortgagee (lender). This battle has been going on for almost a thousand years. During the past century, the tide has begun to shift in favor of the borrower in many cases, at least in the United States.
American mortgage law is based on English Common Law. Mortgage loans have been in Europe for more than a thousand years. They did not become prevalent, however, until private ownership and use of land became more widespread. The mortgages of the 1300s were a basic deed that gave full, albeit supposedly conditional, owner of the land to the lender.
The borrower would get the loan, but the lender would get the title. The borrower would still keep possession and use of the land. The borrower would regain full ownership of the land once the mortgage obligation was paid. Most of these early mortgages indicated a "law day," on or by which the borrower would have to repay the balance of the loan.
As full owner of the land, however, the lender could evict the borrower at any time and take possession of the property. But the lender's ownership faced the restriction that any rents that the lender collected for that land must be applied toward the mortgage debt. As mentioned earlier, once the mortgage debt was paid in full, the property would revert back to the borrower. Because of this condition, most lenders preferred to let the borrower keep possession and use of the land; thus, lenders would not have to worry about finding and managing renters.
There were no foreclosure suits at this time, at least as we understand foreclosures today. As soon as the borrower failed to make a required payment, the mortgage was destroyed and the lender would have full, unimpeded ownership of the land.
As with all legal developments, a grassroots campaign for change slowly evolved mortgage foreclosure law. Many borrowers began petitioning the king (or his vicar, the lord chancellor) for relief. Because medieval justice flowed from royal authority, these petitions had to addressed with justice and equity. Consequently, many such petitions for redemption were allowed, particularly in cases of hardship or accidents.
Redemptions, however, required the borrower who lost the property to the mortgagee (lender) to still repay the lender. The granted petition merely required the lender to now accept the payment, even after the mortgage had been extinguished. This became routine policy by the mid-1600s; thus was born the equitable right of redemption.
The court still held that the lender was legal owner of the land as soon as the borrower defaulted. However, in the interest of justice and fairness, the borrower was granted a chance to redeem the lost property; and the lender was forced to accept the redemption payment.
This right of redemption obviously rankled many lenders. Many lenders consequently tried to insert provisions in the mortgage, by which the borrower was forced to waive their right of redemption. The courts would have none of this, however, and quickly deemed all such provisions and clauses as void.
Another tactic pursued by lenders was to limit how the right of redemption could be exercised. Again, the courts would not allow such lender-imposed restrictions on the exercise of the borrower's right to redemption. However, there have been some exceptions allowed for investment property mortgages, as recent innovations and sophisticated arrangements have been created that would have to create some restrictions. For example, a shared appreciation mortgage makes the lender almost a partner with the borrower in the land. That creates additional restrictions on the borrower's mortgage interest and redemption rights.
A theme that has reverberated in mortgage law to this day arose in those years: "once a mortgage, always a mortgage." Regardless of how the parties (especially the lender) may disguise the mortgage and make it look like a different kind of deed, the intent and function was still a mortgage.
To access the rest of this article, please go to: http://www.dignitymortgage.com/RealEstate/All_About_Foreclosure1.htm