What is a Foreclosure?

Posted by admin on February 2, 2010 under Real Estate License Basics | Be the First to Comment

Understanding foreclosure is important to your success in real estate today.

Having a real estate license means you will be expected to understand many processes that fall outside the realm of real estate sales. You likely learned about this in real estate school but generally speaking, foreclosure is the name for the legal process in which the mortgage holder regains the property if the loan is defaulted on. When the homeowner can not keep up with the terms of the mortgage and falls behind the lender begins the process of foreclosing on the home. There are a few different methods of foreclosure proceedings, depending upon the state in which you live.

The most common method of foreclosure is the judicial foreclosure. When the loan is defaulted on, the lender files a lawsuit against the borrower. The summons and complaint are presented to the borrower and they are given the opportunity to respond to the complaint. If the borrower does not file a response to the complaint, then the lender is automatically awarded the judgment. A court appointed referee will calculate the total amount due on the property including the balance left on the mortgage along with any other interest and legal fees. The lender is then required to advertise the property for sale at that price for a period of no less than four weeks.

If the amount needed to cover the costs of the original loan are not recovered with the sale of the property, then an aution will be held. The property will be sold to the highest bidder. Depending on the state that you live in, if the auction does not bring in a high enough bid to cover the total due for the property, then lender could possibly get a deficiency judgment against the borrower in order to recover the total amount they are owed. There are a few states that do not allow lenders to impose deficiency judgments against a borrower. The entire process of a judicial foreclosure can take anywhere from 90 days to up to a year or more, depending on the number of foreclosures in the area.

Non-judicial foreclosure is also known as “power of sale”. This allows the lender to foreclose without filing a lawsuit. Instead of issuing the borrower a mortgage, the lender grants them a deed of trust. Upon defaulting on the loan, the lender will file a notice of default and notice of sale before the property is advertised for sale. Unlike a judicial foreclosure that can take several months, the non-judicial foreclosure process is usually completed within 90 days There is also a method known as strict foreclosure where the borrower has a predetermined period of time in which to bring the loan out of default. If they are unable to do so, the title reverts back to the lender automatically. Many states offer borrowers the opportunity to reinstate their loan by paying the amount in default, including interest and fees, prior to the sale.

Types of Real Estate Loans

Posted by admin on February 9, 2010 under Real Estate License Basics | Be the First to Comment

When you first took your real estate license exam the basics of the available mortgage types was something that was covered briefly, but to be the trusted source your clients look to for real estate information, you should be able to explain enough about the most popular types of mortgages available to them. Conforming or non-conforming, fixed or adjustable rates, you should know enough about available mortgage products to explain them to your clients.

Primarily mortgages can be broken down into conventional or government loans. Any loan secured through the Federal Housing Administration, Department of Veterans Affairs, or Rural Housing Service is considered a government loan. Any mortgage that is not insured by one of these government agencies is considered to be a conventional loan.

Conventional loans can be broken down into conforming and non-conforming loans. Conforming loans follow the guidelines set forth my Freddie Mac and Fannie Mae. For those clients who do not meet the credit criteria required to qualify for a conforming loan, there is the option of the non-conforming loan. These loans will generally require more money down and/or a higher interest rate and closing costs, but the more lenient credit standards make it easier for those clients with credit challenges to qualify.

The interest paid on the mortgage can be locked in at either fixed or adjustable rates. A fixed interest rate is one rate of interest that you agree to pay for the life of the loan. Individual loan programs may have prepayment penalties for a period of time, but until the loan is paid in full or refinanced, you will pay the same interest rate regardless of the market.

Adjustable interest rates start out at on rate for a predetermined period of time and then they adjust. The amount of adjustment is dependent upon a combination of the terms of the individual loan agreement and the current interest rate. There are several types of adjustable interest rate programs available.

There are two step loans that have an interest rate that adjusts only one time. For a period of time, usually 5 or 7 years, the loan will be at one fixed interest rate, then the rate will adjust to the current market and remain fixed at that rate for the remainder of the loan. A convertible adjustable rate is similar; you can convert the adjustable rate to a fixed rate during a predetermined period of time for a nominal fee. Fixed period adjustable rate mortgages allow for a fixed rate for a period of time before the first interest rate change. After the first change, the interest rate will change each year thereafter for the life of the loan.

There are benefits and disadvantages to all of these types of mortgages, but being able to present your buyers with the information that they need when they need it will increase your credibility, and ultimately, your commissions. The more knowledge you can offer your clients, the more valuable your real estate license will be.