A foreclosure, as in the actual act of a lender seizing a property, is typically the final step after a lengthy pre-foreclosure process, which can include several alternatives to foreclosure including many that can mediate a foreclosure's negative consequences for both the buyer and the seller. As with foreclosures, states have their own laws to handle this process.
Occasionally, borrowers have raised enough cash at the last minute (usually through desperate fire sales of other unencumbered assets) to offer good tender and have thereby preserved their rights to challenge the foreclosure process. Courts have been unsympathetic to attempts by such borrowers to recover fire sale losses from foreclosing lenders.[22]
As per the foreclosure data report of RealtyTrac for January 2014, 1 in every 1,058 homes in U.S received a foreclosure filing. This figure falls in the higher spectrum of foreclosure frequency. As of August 2014, the foreclosure rate was 33.7%, 1.7% up from the last year. The rise in foreclosure activity has been most significant in New York and New Jersey, the two most densely populated areas in U.S. Closely following them is Florida.[35]
Both mortgage (re)possession and foreclosure are quite similar, with the main differences being the treatment of any funds that exceed the amount borrowed and liability for any shortfall. In the case of mortgage possession or repossession, if the home is sold or auctioned for a price that exceeds the loan balance, those funds are returned to the consumer. If the proceeds from a mortgage possession are insufficient to cover the loan then the debtor remains liable for the balance, although in most cases this will become an unsecured debt and the mortgage company will be treated on an equitable basis with the debtor's other unsecured creditors (particularly if the debtor simultaneously or subsequently becomes bankrupt or enters into a voluntary arrangement with creditors). By contrast, in the case of foreclosure the mortgage company retains all rights to proceeds from a sale or auction but the debtor is not liable for any shortfall.
Several U.S. states, including California,[17] Georgia,[18] and Texas[19] impose a "tender" condition precedent upon borrowers seeking to challenge a wrongful foreclosure, which is rooted in the maxim of equity principle that "he who seeks equity must first do equity", as well as the common law rule that the party seeking rescission of a contract must first return all benefits received under the contract.
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As the end of the rent-to-own contract nears, it’s a smart idea to address any minor problems that the home inspection turned up. It’s also a good idea to make small cosmetic improvements and upgrades as needed, if possible, to help increase the value of the home prior to applying for a mortgage loan. It’s called sweat equity … and it can make a big difference when it’s time to negotiate favorable mortgage loan terms.
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