Foreclosure is a common term used in the world of housing loans. It refers to the legal action of taking control of properties that are in arrears. Arrears occur when a borrower refuses to repay the lender after borrowing money with a property as collateral. In such scenarios, the ownership is transferred to the lender automatically.
Do you plan to purchase a home by taking out a loan? If yes, then you need to have a good understanding of what foreclose loan means. So, in today’s blog, we are going to explore foreclosure in detail. We’ll cover some highly important topics related to it. Without further ado, let’s jump straight to our first topic.
What does a foreclosure loan mean?
Foreclose loan means when lenders take control of a borrower’s property after the borrower misses multiple mortgage payments. Suppose you bought a house by taking out a mortgage from a bank or other lender and agreeing to a certain deal. In exchange for the money, they lend you the money to purchase a property, and you agree to pay a specific sum every month for “n” number of days.
The agreement here is recorded as proof in a contract signed by both parties. If, for some reason, you are unable to make those monthly payments, the lender or bank will foreclose the property. meaning they will take control of it and sell it further to compensate for the funds they lost.
In such a case, you cannot do anything because it’s all legal and you have agreed to it by signing the contract. If we look at it the other way, foreclosure is a nightmare for any borrower. But there are some ways to save yourself from foreclosure. We’ll talk about them later in this blog.
What are the types of loan foreclosures?
Now that you know what foreclose loan means, it’s time to understand their types. So generally, the foreclosure process begins when you miss a certain number of mortgage payments. There are two primary ways in which lenders foreclose on your loan:
#1 Judicial Foreclosure: For this type of foreclosure, the lender needs court orders.
#2: Non-judicial foreclosure: This depends on the state where your property is located.
Aside from these, there are a variety of other options depending on the terms of the mortgage and your state. The most significant factor that differentiates these types of foreclosure is that some involve legal actions. Some, on the other hand, simply do not.
For example, judicial foreclosure, power of sale, and strict foreclosure. Let’s talk about each of these foreclosure types in detail right below:
- Judicial Foreclosure
In judicial foreclosure, lenders file lawsuits against borrowers. Borrowers are informed about the lawsuit once it is successfully filed by the court. After the notification is received, the house owner or borrower has 30 days to make up the missed payments. If they fail to do so, the foreclosure will begin.
- Power of Sale
A power of sale is another type of foreclosure that is allowed in limited states, depending upon the “sale clause” of your mortgage contract. Such foreclose loan means that if you fail to make monthly payments, lenders are allowed to auction the property. This is a non-judicial foreclosure because there’s no legal action.
- Strict Foreclosure
Strict foreclosure isn’t a very popular type of foreclosure; it’s uncommon. The reason is that it’s allowed only in some states. According to this foreclosure, the lenders file lawsuits against borrowers. They seize the property if the borrower fails to make the payments within the time given by the court.
How do I avoid loan foreclosure?
Foreclosure is something that borrowers don’t want to experience. It’s a nightmare. Luckily, there are certain ways you can avoid it. Understanding what foreclosing on a loan means is the first step towards avoiding it. Here are some other ways to do the same:
- Forbearance Programs
A forbearance program is an exceptional way of avoiding foreclosure. Let us tell you what exactly this program is. So, during the global pandemic, the federal government established this program. It’s not enabled in some countries, but there are many places where it’s still available. This plan will help you with your foreclosure by helping you financially.
- Try adjusting the loan terms
Uncertainties are unavoidable and unidentifiable. If you struggle to afford your monthly mortgage payments, you can always ask the lender to adjust the terms. Most borrowers hesitate to ask for adjustments from lenders and then regret that later. Be smart and ask for adjustments. You might be able to decrease your monthly payments by increasing the loan tenure period.
- Set up a repayment plan
Everyone knows about their financial condition. But instead of talking negatively, you can adjust your finances accordingly, considering your loan. Sit back and create a repayment plan. Adjust your expenses for a month and try to keep your loan payment as your priority. If you somehow are unable to pay for a month, your lender might agree to adjustments. That’s when making payments ahead of time helps you out!
- Take out a loan with a low interest rate
Many people use the same approach to get rid of their mortgage permanently. It is only applicable when you have a few monthly payments to make but your budget is tight. So, there is always someone in the market offering loans at a low interest rate. Take your time and research different lenders. If you have any other assets, you can present them as collateral and borrow money for an EMI you can easily afford. From the funds lent at low interest, pay all your mortgage and free up your house. This way, your house is safe from foreclosure, and your liability is decreased.
So that was all there was to know about foreclosure. Foreclosure might be a nightmare, but it’s avoidable. In this blog, we have shared some key tips and methods you can use to avoid foreclosure. Share this blog with someone you know who might plan to take out a mortgage. Help them avoid foreclosure.
Also, if it’s your first time applying for a loan, it’s best to have expert assistance by your side, such as Piramal Finance. It’s a well-known finance firm that offers a wide range of premium finance-related services to individuals and businesses. Collaborate with them and get your desired loan effortlessly!