Are Private Lenders Eligible for Foreclosure?
Foreclosure is a legal process where a lender tries to recover an amount owed to them. This usually results from a defaulted loan. Consequently, the lender would attempt to take ownership and sell the mortgaged property.
A voluntary foreclosure includes a borrower initiating foreclosure. For example, a borrower may initiate foreclosure because they are no longer able to pay loans on a property in an attempt to avoid eviction.
This is opposed to involuntary foreclosure, where foreclosure is initiated by the lender instead. When an involuntary foreclosure is initiated, the lender seizes possession of the property.
How Foreclosures Work
Foreclosures usually occur when an individual wants to purchase a property, sort of a house, but they cannot pay at once. Instead, they can consider paying a small percentage of the price and borrow the remainder of the money to pay later.
Where the money left to be repaid is much, the bought property would serve as collateral for the loan. If payments stop, the lender can opt to foreclose on the property.
In a foreclosure, the lending agency always holds the most power. The lending agency can initiate a voluntary foreclosure when the need arises. However, it gets complicated when the lender is a private lender.
How Can a Private Lender Foreclose?
For a private lender to initiate foreclosure, some necessary documents must be provided to the homeowner. When the loan goes into default, foreclosure can then be considered. The borrower may be given a 30-day notice of possible foreclosure.
If the homeowner does not come up with the money during this period, foreclosure is unavoidable. In addition, they will ultimately lose their home for failing to meet the default.
A private lender needs to be legally recognized as the appropriate lender. For this to be possible, all correct paperwork must be signed with official documentation. In addition, local offices that govern matters concerning real estate must recognize the private lender.
When this is fulfilled, there will be no issue. The lender can now proceed to initiate foreclosure procedures if necessary.
When contact has been made between the lender and the borrower, the latter should begin discussing how they will begin payment. If the two parties cannot communicate, especially from the borrower’s end, the lender may start foreclosure immediately. Communication is important because adjustments can still be made to the deal.
The Process of Foreclosing
To start a foreclosure, a default notice will be written. Generally, lenders give notice as soon as one payment is missed. Foreclosure proceedings are usually initiated three to six months after the first mortgage payment is missed. After that, lenders may send a “Demand Letter” or “Notice to Accelerate,” which requests payment within 30 days.
After the 30-day grace period ends, judicial or non-judicial foreclosure typically follows. during a judicial state, the lender would bring legal action against the defaulter in court. In non-judicial states, a judge is not involved. Instead, lenders would foreclose based on the “power of sale” clause in the agreements signed.
Also Read: 5 Common Lemon Law Mistakes and How to Avoid Them
“Sometimes, lenders may offer borrowers the grace to reinstate the loan and stop the foreclosure process. If a lender cannot prevent foreclosure, the property will be auctioned to the highest bidder. If nobody buys the home, in the end, the lender will have ownership,” says Attorney Justin Gillman of Gillman Bruton Capone Law Group.
Conclusion
Now you know a private lender can initiate voluntary foreclosure. As a private lender, a non-judicial foreclosure is recommended. The process is less expensive than a judicial one. You also would not need to file a lawsuit, so it is much faster to repossess a property.
