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.
The impact of foreclosure goes beyond just homeowners but also expands to towns and neighborhoods as a whole. Cities with high foreclosure rates often experience more crime and thefts with abandoned houses being broken into, garbage collecting on lawns, and an increase in prostitution. Foreclosures also impact neighboring housing sales on two levels—space and time. For any given time frame, foreclosures have a greater negative impact when they are closer to the property attempting to be sold. The conventional view suggested is that the increase in foreclosures will cause declines in the sales value of neighboring properties, which, in turn, will lead to an extension of the housing crisis. Another significant impact from increased foreclosure rates is on school mobility of children. In general, research suggests that switching schools is damaging for children, although this does significantly depend on the quality of the origin and destination schools. A study done in New York City revealed that students who changed schools most often entered a school with lower, on average, test scores and overall school performance. The effect of these moves on academic performance for individual students requires further research. Foreclosures also have an emotional and physical effect on people. In one particular study of 250 recruited participants who had experienced foreclosure, 36.7% met screening criteria for major depression.
In some US states, particularly those where only judicial foreclosure is available, the constitutional issue of due process has affected the ability of some lenders to foreclose. In Ohio, the US federal district court for the Northern District of Ohio has dismissed numerous foreclosure actions by lenders because of the inability of the alleged lender to prove that they are the real party in interest. The same happened in a Colorado district court case in June 2008.
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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.
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In response, a slight majority of U.S. states have adopted nonjudicial foreclosure procedures in which the mortgagee (or more commonly the mortgagee's servicer's attorney, designated agent, or trustee) gives the debtor a notice of default (NOD) and the mortgagee's intent to sell the real property in a form prescribed by state statute; the NOD in some states must also be recorded against the property. This type of foreclosure is commonly called "statutory" or "nonjudicial" foreclosure, as opposed to "judicial", because the mortgagee does not need to file an actual lawsuit to initiate the foreclosure. A few states impose additional procedural requirements such as having documents stamped by a court clerk; Colorado requires the use of a county "public trustee," a government official, rather than a private trustee specializing in carrying out foreclosures. However, in most states, the only government official involved in a nonjudicial foreclosure is the county recorder, who merely records any pre-sale notices and the trustee's deed upon sale.
For a developing country, there is a high rate of foreclosures in South Africa because of the privatisation of housing delivery.[neutrality is disputed] One of the biggest opponents of foreclosures is the Western Cape Anti-Eviction Campaign which sees foreclosures as unconstitutional and a particular burden on vulnerable poor populations.[undue weight? – discuss]
While rent-to-own agreements have traditionally been geared toward people who can’t qualify for conforming loans, there’s a second group of candidates who have been largely overlooked by the rent-to-own industry: people who can’t get mortgages in pricey, non-conforming loan markets. “In high-cost urban real estate markets, where jumbo [nonconforming] loans are the standard, there is a large demand for a better solution for financially viable, credit-worthy people who can’t get or don’t want a mortgage yet,” says Marjorie Scholtz, founder and CEO of Verbhouse, a San Francisco–based start-up that’s redefining the rent-to-own market.
Because the right of redemption is an equitable right, foreclosure is an action in equity. To keep the right of redemption, the debtor may be able to petition the court for an injunction. If repossession is imminent, the debtor must seek a temporary restraining order. However, the debtor may have to post a bond in the amount of the debt. This protects the creditor if the attempt to stop foreclosure is simply an attempt to escape the debt.
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