Alternatives to foreclosure

The essential elements of a foreclosure action consist of: (1) the foreclosure complaint; (2) the lis pendens notice; (3) the judicial proceedings to obtain a judgment from the circuit court; (4)    the findings of fact, conclusions of law, and judgment which is rendered by the circuit court; (5)    the judicial sale by the master commissioner; and (6)    the subsequent proceedings taken to obtain a deficiency judgment. To initiate a foreclosure action, the claimant must first have a lien or interest against the real estate which is to be foreclosed upon.

Basically, this type of lien or interest comes two forms. The first type of lien or interest is a lien or interest which is created voluntarily through an agreement, such as a mortgage agreement. In the mortgage agreement, the property owner conveys and transfers a mortgage interest to a lender as security for the payment of indebtedness such as a loan between the property owner and the lender. The second type of lien or interest is a lien or interest which is created by statute, such as a mechanic or material man's lien or a professional lien.

Pursuant to statute, the lien holder is accorded a lien or interest against real estate to secure any unpaid indebtedness between the property owner and the lien claimant for labor, materials, or services which benefited the real estate. In each case, the person asserting the lien or interest must prove that the property owner had defaulted on his/her obligations to the lien holder, and that the lien holder has the right to foreclose upon his/her lien or interest against the real estate.

It’s possible that foreclosures will flatten out or even move a bit lower if more buyers and investors enter the market, giving homeowners in distress a better chance of selling their properties to avoid going into default or foreclosure. The foreclosing unit or a person claiming to have a property interest in the property foreclosed may appeal the circuit court’s order or the circuit court’s judgment foreclosing property to the court of appeals.

An appeal is limited to the record of the proceedings in the circuit court and shall not be de novo. The circuit court’s judgment foreclosing property shall be stayed until the court of appeals has reversed, modified, or affirmed that judgment. If an appeal stays the circuit court’s judgment foreclosing property, the circuit court’s judgment is stayed only as to the property that is the subject of that appeal and the circuit court’s judgment foreclosing other property that is not the subject of that appeal is not stayed.

To appeal the circuit court’s judgment foreclosing property, a person appealing the judgment shall pay to the county treasurer the amount determined to be due to the county treasurer under the judgment on or before the date immediately succeeding the entry of a judgment foreclosing the property or in a contested case within 21 days of the entry of a judgment foreclosing the property together with a notice of appeal. Alternatives to foreclosure

When a loan has defaulted, which is normally prescribed as being 90 or more days delinquent, both the borrower and the lender still have several options available to them besides proceeding directly to foreclosure. Like for example, the borrower can sell the home before foreclosure commences and use the proceeds to settle the mortgage, a pre-foreclosure sale. This is particularly appealing and beneficial if the homeowner has positive equity in the home and can cover the outstanding loan amount through sale of the property.

In fact, even in negative equity situations lenders often permit a short-sale (transaction price is less than the unpaid balance on the loan), because it is a fact and lenders are very well aware of it that the foreclosure process can take a long period of time and can be extremely costly. Thus, a short-sale scenario would be generally desirable in states that necessitate foreclosures to be conducted or processed through the state’s judicial system.

Another alternative, though a rarely used option, is to find a homebuyer who is willing to assume the mortgage. In this case a new borrower, who is more probably identified as being likely to make future payments than the current borrower, resumes payments. As is also true with a pre-foreclosure sale, the defaulted borrower has avoided a major deficiency on their credit history record and has reduced the cost of borrowing in the future. This is primarily a viable option when the outstanding mortgage is smaller than the value of the property.

When the value of the property is a lot bigger than the outstanding mortgage other options can be looked into. One is to modify the existing mortgage arrangements. The lender can lower down the interest rate on the loan, change the product type, or extend the term of the loans while capitalizing the delinquent payments into the new loan. The objective here is for the lender to obtain the whole amount owed but still making the loan payments more affordable for the borrower, even when the borrower is in a negative equity situation.

Obviously, the lender is betting or hoping that the borrower will be able to make the payments in the future, even though the borrower has failed in the past. One more alternative is for the borrower to declare bankruptcy anytime during or before the foreclosure process. The foreclosure is stayed (cancelled or at least postponed) until lifted by the bankruptcy court. The investor or lender can then file a motion for relief, which is typically granted if the outstanding mortgage is larger then the value of the house, referred to as a negative equity (Nemeth & Van Horn, 1994).