Here’s everything you need to know about the foreclosure process.
Recently, a lot of people have asked me, “What happens when someone defaults on a loan?” Today I want to answer that question and explain the foreclosure process.
The first thing to consider is that you, or whoever the investor is, have a security instrument in that property. This is the deed of trust that’s recorded against the property. In addition to that, GNT has a third-party servicing company acting on your behalf to make sure your investments are protected.
Essentially, this third-party service starts the foreclosure process for you in the case of a default. In this case, foreclosure is where we make sure your investment is protected while allowing the borrower to get the equity out of their property.
The first step of the foreclosure process is to send out a “notice of default”. 90 days after this is filed, they can file a notice of “trustee sale”. 21 days after this notice, we can take the property to auction. There are a lot of procedures that need to be followed during this period, but our third party will take care of everything. It’s also important to note that even though your borrower is in the foreclosure process, you’re still accruing interest on their loan, late fees, and any other penalty in place.
If you and your borrower don’t come to an agreement, and the property goes to a foreclosure sale, two things can happen. First, the property can be sold to another investor. In this case, the lender will be paid the remaining amount on the loan. The other option is that the lender can take ownership of the property. From here, the lender can do whatever they want with it.
An important thing to remember is the equity cushion. Basically, this says how much of the total value of the property we’re willing to lend. For a typical loan, the amount is usually no more than 65% of the property’s total value. So for a $100,000 home, we’d only lend $65,000. This gives us a cushion in the case of fluctuating values or foreclosure. In other words, we make sure your investment always has enough equity to be protected.
If you have any questions about today’s topic, please reach out to me or my team. We are always willing to help.
NMLS ID: 307420