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Foreclosures and Liens

A mortgage is a transfer of an interest in real estate as security for the repayment of a loan. A mortgage transaction has a buyer borrowing money from a lender and entering into a written agreement with the lender that puts the real estate up as collateral for the loan. If the buyer fails to make payments on the loan and defaults, the lender is permitted to foreclose on the real estate. Once foreclosed, the lender may sell the property at auction to try to recover as much of the unpaid balance as possible. Limited by the terms of the contract, the lender may be able to sue the buyer to try to recover the remainder due on the mortgage.

A borrower, or mortgagor, obtains a mortgage loan through a process of application and commitment. The borrower begins the procedure by submitting an application to the lender, or mortgagee, and in some cases paying a nonrefundable fee. The lender evaluates the risk to determine whether it will offer a loan to the applicant. As part of the risk analysis, the lender evaluates the borrower’s financial position and the value of the real property. If the risk is acceptable, the lender prepares a loan commitment detailing the loan amount, repayment terms, interest rate, and other relevant terms. Because the agreement does not normally consist of the lender using the application as the document that describes the parties’ mutual intentions, the papers the lender prepares and offers the applicant are going to be considered a counter-offer. If the applicant accepts the commitment of the lender, a binding contract of a mortgage loan is created.

Ordinarily, the borrower will pay off the mortgage loan over the course of one, two, or three decades. But sometimes the borrow can no longer make the periodic payment. Default comes when the mortgagor-borrower fails to perform an obligation secured by the mortgage. Default commonly is results from the mortgagor failing to pay monthly installments in a timely manner. Default can also come from the mortgagor failing to insure the property properly or failing to pay property taxes. Escrow accounts have reduced the frequency of default.

Anything constituting waste—which has a legal definition that might include bad destruction to the property by the borrower—can constitute default.

Mortgages may include an acceleration clause calls the entire debt due immediately upon the occurrence of a predetermined event. The mortgage lender will be required to give notice that the mortgage will be accelerated. Borrower default is almost always going to be a condition that triggers acceleration.

Mortgages also condition acceleration on the mortgagor (borrower) transferring any interest in the mortgaged property without consent of the mortgagee (lender). These clauses, referred to as due-on-sale clauses, protect the mortgagee from being forced to do business with individuals or entities other than the mortgagor with whom the mortgagee initially negotiated. When a mortgagor transfers the mortgaged property, the mortgagee may accelerate the debt or consent to the transaction conditioned on the new owner assuming the mortgage and paying the debt. The lender may require a transfer fee or a rate increase.

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