Foreclosed properties have been said that because it is the result of an owner or debtor not able pay the property anymore. As result, a bank or any other lending entities can now re-claim the property. That property is now called foreclosed property.
The reason for the foreclosure is not only a defaulting payment of a debtor but others such as taxes, association fees and undue reselling of the property can cause the foreclosure.
Before we delve down to the bosom of foreclosed property and how you avoid them, few things you might not know yet, that your property is your guarantee. Typically, when you loan from a bank to build a property, doesn’t matter if it’s for business or personal purposes, you get assessed by the bank then you sign security instrument such as mortgage and lien. This in turn guarantees the bank that if you default from your payments, they have the right to take back your property.
Mortgage is not a loan, technically. It only represents the loan security together with the bank’s monthly interest. Think of it as money or paper bill, which doesn’t have any intrinsic value, except that it represents valuable elements in the society such as products and services. So, mortgage represents the money you have loaned from a bank. It is mortgage also that merits a lien.
Lien on the other hand, is the bank’s legal guarantee that it has the right to recall your property if you defaulted from payments. That’s why you have to sign it before you’ll be granted a loan. Now, lien will be publicly documented so anybody searching for the status of your property will be notified that your property is still in “trouble” or hasn’t been fully paid yet. The inquiring party will then be knowledgeable of what to do before purchasing a property.
Note however, even though the property is sealed by a mortgage agreement as well as a lien, the borrower fully owns the property. Such so, that no one else will have any other claim of the property except the barrower. Even the bank or a lender cannot sell or auction the property unless it underwent legal foreclosing procedures.
“Lien is a legal claim to a property by a lender in cases where the barrower defaults from his payments. The lien is publicly documented for personal consumption of interested parties looking for properties.” Deed of Trust is a form of arbiter between a barrower and the lender. So it’s a tripartite agreement – the barrower, lender and the trustee. The trustee must be a disinterested party who does not favor any of the party in cases where issues arise. Trust companies or attorneys serves as the trustees or Deed of Trust holders.
After the mortgage have been satisfied, the trustee will now release the deed of trust to both parties. However, if the borrower defaulted, the trustee practices the right, as stipulated, to auction the property under the allowance of the beneficiary or the bank.
“A trustee must be a neutral third party to guarantee equitable exchanges between the lender and the barrower in cases where problems arise between contracting parties. In most cases a Trust company or an attorney renders trust services.” Foreclosure is an antagonistic act of the lender not only to himself but to the borrower as well. Banks, who are usually the lenders, do not benefit from foreclosures. When a property is foreclosed, it is presumed that the bank hasn’t recouped its expenses. The foreclosed property then is archived by the bank for auction. If the property stays with the bank for a long time, it incurs further expenses like property taxes and maintenance. Over time, this becomes the bank’s non-performing assets, and it ceases to be assets if expenses override profitability.
This is one major reason why banks are very thorough in doing credit screening and property project assessment. Well, business is business as they say. For what is business if you don’t regain your principal and much more profit from it.
But foreclosure is the bank’s last card. They’ll do whatever means under their hood to assist the borrower in the upkeep of his mortgage. So, if you’re the ones faced with this kind of dilemma here are handfuls that you can do.
As properties cannot immediately get foreclosed even for some defaulting barrowers, you can still ask the bank to reinstate your account. You need to pay in lump sum the remaining backlogs so you get current again with your account.
As stated, the bank will be as relenting as possible if it only means recovery and profit. So, the bank will allow delayed payments for a short period if they are surely guaranteed that a promising payment option will make the account mainstream again. This method can be combined with Reinstatement procedures.
There are many methods and modalities of repayment plans, depending on the bank. Typically, if the account is overdue and the barrower notified that he can now proceed with the regular payment, lender can distribute the backlog to specified months until the account is current again.
Mortgage modification is one of the best payments restructuring for a barrower. If for some instance the barrower cannot anymore pay or catch-up with current plan, the lender can extend the mortgage plant to meet the barrowers paying level. Extending time is a more palpable options for the bank than losing profit in a short period of time.
If any of those veritable options are not possible, the lender can hold foreclosure for certain period to give the barrower time to sell the property.
This happens when the barrower decides to give up on his project and therefore returns the property to the lender. The lender then may forgo of the debt. Depending on the bylaws signed, the lender might oblige the barrower to sell the property before offering this option.
There could be more than these lists. As there are hundreds to thousands of creditors or banks, so there could be hundreds of ways to avoid foreclosures. Always, before you go chasing for that next dream property, do a due diligence on your finances over and below. Same is through, when you are buying a property doesn’t matter if it’s foreclosed just building it from ground up, bring up your list of due diligence which would include mortgage and lien engagements.
Speaking of your Real Estate Pre-Purchase Due Diligence Checklist, you can download below a template for your own consumption. Note however that the checklist is a bit specified for Philippine Real Estate Market, so check those that work for you and delist items that don’t:
This checklist is brought to you by Jay Castillo of foreclosurephilppines.com
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