#1 Understand Your Property Debt

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#1 Understand Your Property Debt

Most Georgia home buyers use a mortgage to finance their purchase. These buyers are then subject to “home repossession” if they default on the terms of the mortgage. That is why borrowers MUST understand the details of their property debt.

Foreclosure has far-reaching and long-lasting consequences. Legally speaking, foreclosure actually means to “shut out”, “to bar”, “to extinguish” a mortgagor’s (borrower’s) right to possess real property. It is a dreaded proceeding in which a bank or other secured creditor sells or repossesses certain real property due to the owner’s failure to comply with an agreement between the lender and borrower called a “mortgage” or “deed of trust.” It is a termination of all rights of the homeowner covered by a mortgage.

Put more simply, foreclosure is the process by which a lender may repossess a property when the borrower defaults on payments. It is one of the most frightening, embarrassing and traumatic experiences an individual or family can endure. And the effect of foreclosure on a person’s credit rating and ability to become a homeowner in the future are negative and long-lasting. A foreclosure remains a blight on the borrower’s future ability to get a home loan. While other negative credit items may fall off an individual’s credit report after 4 – 10 years, the one question that is asked on every mortgage application is “Have you ever had a foreclosure?”

In few states is the foreclosure process as fast and brutal as it is in Georgia. Unlike most other states, Georgia allows foreclosure to take place with no judicial oversight as long as a power of sale clause is included in the security document.  They are not even required to file a lawsuit. And no state has a shorter foreclosure process. Although most lenders will wait until a borrower is several months behind in payments before initiating a foreclosure, once the process starts in Georgia, a house can be sold on the courthouse steps in as few as 37 days. Lenders, of course, prefer this method because it involves less time and expense for them than if they were required to file a lawsuit. 

Why is the Georgia Foreclosure Process so Fast?

Georgia is what’s known as a Title Theory state, where the property title remains in the hands of the lender until the underlying loan is paid in full. When a person buys real estate in Georgia with funds borrowed from a lending organization or party, the loan — also called a mortgage — is established by two legal instruments: a promissory note or “promise to pay”, and some type of title security document.

The first of the two mortgage instruments is the note, which is considered to be a negotiable instrument that can be transferred to another person or agency to collect. In fact, mortgages often change hands more than once dring the course of the loan.

The second is the security instrument. The document that secures the title in Georgia is called a Deed to Secure Debt but may also be referred to as a Secirity Deed. When you entered into such an agreement, you, the borrower, became the mortgagor, or person incuring debt in order to purchase real estate, and your lender became your mortgagee, the credit-extending agency.

The mortgage creates a lien on the property in favor of the lender. In Georgia this usually takes the form of a security deed conveying title over the property to the lender, though the borrower retains all the usual rights of ownership  as long as the repayment terms are being met. 

What are Acceleration and Power of Sale?

Acceleration is a clause written into the mortgage which allows the mortgage-holder the right to declare the entire debt due and payable anytime a borrower defaults on their agreed payment schedule. Virtually all mortgages today have acceleration clauses. But Georgia mortgages usually go a step further. The security deed also contains a “power of sale” provision, which authorizes the lender to sell the property with no judicial process required in case of default.

What this means for Georgia home buyers is that the lender keeps the title to the property until the terms of the lending agreement have been entirely fulfilled. Then the lender must clear title by cancelling the security deed upon full payment of the debt. But, if the borrower does not adhere to the terms of repayment, the lender may foreclose on the property. 

How do people become faced with foreclosure?

In the excitement of the regrettable real estate run-up, it seemed possible that every American could live the much-touted “Dream” of Home Ownership. Some lenders and some real estate professionals ushered eager prospects into mortgage products that didn’t make much sense in the long-run. Some optimistic borrowers overreached., while others fell prey to questionable lending practices to take on loans they could not afford. More recently the deterioration of the job market has meant more homeowners are falling behind in their payments due to unemployment. Then there are the Alt-A’s and Option ARMs that are resetting at higher rates while incomes remain stagnant.

However they got there, countless Georgians now find themselves unable to make their monthly mortgage payments as promised and therefore facing the threat of flosing their homes or investment properties. In Georgia, the power of sale clause provides the lender or mortgage holder a speedy recourse to repossess and resell such property. They can usually initiate foreclosure at anytime after a default on the mortgage.

What is the process for foreclosure in the Georgia?

The Foreclosure process begins when the homeowner fails to make payments of the money due on the mortgage at the appointed time. Proceedings typically start with a formal demand for payment which is usually a letter issued from the lender. This letter of notice is referred to as a Notice of Default (NOD). In Georgia, the lender will issue this notice when the homeowner has been 30 days or more delinquent on the mortgage payments. 

Every Georgia mortgage holder needs to understand that the Notice of Default is a threat to sell your property, terminate all your rights in the property and evict you from the premises. 

In the next installment, I will further explain why the Georgia foreclosure process can legally be so brutal to home owners, and what you can do to forestall it. In the meantime, if you want to get started on your pre-foreclosure sale now, don’t hesitate to call for expert help.

Elva Branson-Lee, Distressed Property Specialist, CDPE

770-475-1130 ext. 8889