Banks and Nonperforming Assets
Lenders do not want nonperforming assets on their books. They lend money to make money. Lenders are quite willing to take the risk of lending money, especially for the purchase of real estate. Because the value of the real estate serves as the collateral for the loan and because real estate is likely to retain its value (or increase), lenders actively seek borrowers.
But the one thing they do not want is a borrower that will not or cannot make the monthly payment. Without the payments coming in to the lender, the value of the loan is diminished. Lenders want (and need) those monthly interest payments to make their money.
When can a defaulting homeowner sell the property if it is in foreclosure?
The owner of a property that is in the process of foreclosure can sell the property anytime up to the point the title is transferred from the borrower to the lender. As long as the borrower can sell the property and pay the loan off to the satisfaction of the lender, he can do so until the time of the public foreclosure sale.
Foreclosure is never easy for the borrower or the lender. The goal of the foreclosure is to force the borrower out of the home and turn the title of ownership over from the borrower to the lender. When a nonperforming loan reaches the point where foreclosure proceedings are commenced, the goal is to get the borrower out of the property as quickly and inexpensively as possible.
For the homeowner in financial difficulty, it is more than just a property; it is her home. There are often many emotions involved ranging from anger to embarrassment.
Many borrowers do not realize that if their property is worth less than the total amount owed on their mortgage loan a deficiency judgment could be pursued by the lender. This means that if the property cannot be sold for the amount of the balance of the loan, the lender may require the borrower to pay the uncovered amount. If that happens, not only do they lose their home, they could owe the lender an additional amount.
Another option for the homeowner facing foreclosure is to surrender the property to the lender. This is often referred to as “deed in lieu of foreclosure.” In order to enter into a deed in lieu of foreclosure, the homeowner should have first tried to sell the property, and the fair market value of the property has to be equal to the indebtedness of the buyer.
Foreclosures are never easy. Something happened to the borrower (remember that she did qualify for the loan, and her credit and financial condition was good when she borrowed the money). For the borrower it's an emotional, mind-numbing time. For the lender it's business: make the payments or face foreclosure. And for the astute real-estate investor, there are opportunities available to make money by investing in foreclosures.
