1. Loan Defaults and Foreclosures
Chapter 13
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2. Defaults
• Breach of one or more of the conditions or terms of a loan
agreement
• Acceleration clause activated
• Lenders seek to avoid foreclosure
• Acceleration and foreclosure as last resort
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3. Delinquencies
• Principal and interest
• Grace period
• Late period charge
• Property taxes
• Other liens
• Hazard insurance
• Poor property management
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4. Adjustments
• Workouts
• The Soldiers and Sailors Civil Relief Act of 1940
• The Housing Act of 1964
• Avoiding a foreclosure
• Moratoriums (forbearance) and recasting
• Voluntary conveyance of deed
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5. Foreclosures
• Process to recover lender’s collateral—
borrower’s rights of redemption are
eliminated and all interests in the subject are
removed
– Equitable redemption period
– Strict forfeiture
– Statutory redemption period
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6. Power-of-Sale Foreclosures
• Deeds of trust
– Beneficiary notices payment delinquencies;
borrowers are unable to remedy
– Beneficiary notifies trustee to foreclose
– Trustee files Notice of Default
– Reinstatement period
– Notice of trustee’s sale and publication of date,
time, and place of sale
– Sale is held and highest cash bidder wins
– Trustee’s deed is given to successful bidder
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7. Judicial Foreclosure and Sale
• Conventional mortgages
– Lender notifies delinquent mortgagor
– If no solution, complaint is filed by mortgagee in county court
– Title search made; lis pendens filed
– Complaint brought before presiding judge
– Judgment decree
– Public sale
• Conventional guaranteed mortgages
• Equitable redemption
• Statutory redemption
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8. Loans with Special Foreclosure
Requirements
• FHA-insured loans
• DVA-guaranteed loans
• Junior loans
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