Loan News

by Danny Thomas

When a person has a mortgage on a home and can no longer make payments for one reason or another, often the result is foreclosure. Foreclosure is when the bank or company that offered the mortgage on the home takes the home away from the mortgage holder because of their inability to make payments.

For the average person who isn’t a real estate agent or mortgage officer, foreclosures can be difficult to navigate and understand. There seems to be so many foreign terms associated with the concept that it can leave most of us feeling like we are in the dark. It is easy to get confused when foreclosure related terms are used.

It would be helpful for people to understand a few terms associated with foreclosure. This will help us all feel more educated and more capable of carrying on a conversation about it when necessary. You will almost always hear the term lien holder when talking about foreclosure. Simply put, the lien holder is the bank, credit union, or financial institution that issued the mortgage. Technically, until you pay off the mortgage on a home, the lien holder has most of the power.

Acceleration is another term you will hear in association with foreclosure. When something accelerates, it speeds up. Acceleration is the term used to describe the action of speeding up your loan repayment. If you are failing to make payments on the mortgage, the lien holder can accelerate the terms of the loan and require the entire loan amount be paid back.

With the acceleration clause, a lien holder can demand that the entire mortgage be due within a certain time frame thus accelerating the due date of the entire loan. This is what allows the lender to declare the entire loan is in default. With this clause, the lender has the right to say you owe us the full amount you borrowed and if you can’t pay it, we are foreclosing on the home.

The lender might be able to get a judge to allow them to take back pieces of the land equaling the amount you have failed to pay, but this is a tedious process. It is safer for them to have an acceleration clause so that they can demand the full payment of the loan. Obviously, most people won’t be able to make the payment which then allows the lender to foreclose on the home because you owed them the entire amount of the home and didn’t pay it.

Foreclosure can seem messy. But knowing some of the basic terms will help you understand it better and understanding just might help you avoid it.

About the Author: Danny explains mortgage loans for bad credit and mortgage loans for bad credit.