FHA Foreclosures and Pre-Foreclosure Guidelines

Low to moderate income borrowers had been benefited by the Federal Housing Administration (FHA) affordable mortgages since 1934. Since its inception, it has insured more than 34 million loans on single family homes and so far, foreclosure rates have been relatively low. Their ability to handle borrowers in default and their flexible guidelines not only help people get a home, they have also helped them stay there by avoiding FHA foreclosures. Whatever you may have heard or read in the papers, FHA still has more benefits to it.

Things You Need to Know About FHA Foreclosures and Pre-Foreclosures

FHA Foreclosures

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Although FHA has a good history of handling foreclosures, it’s not immune from defaulting borrowers. It does have a few foreclosures but their statistics are low relative to the number of its customers. That being the case, there are a few things that you need to know if you are an FHA borrower. Having these bits of information will give you a better chance of dealing with your mortgages.

1. Type of proceedings

As per FHA guideline, there are two types of proceedings; pre-foreclosure and foreclosure. Foreclosure is the legal proceeding for the repossession of property due to non-payment. Through this proceeding, the lender takes over the property and sells it in order to retake his investment at a public auction. The pre-foreclosure proceeding on the other hand is a sale program that saves that borrower from being foreclosed by selling the property at a price lower than that loan balance.

2. Effect

When you have experienced a foreclosure or a deed-in-lieu of foreclosure, you are generally not eligible for an FHA insured loan. The affected loan doesn’t have to be FHA-insured for this guideline to apply.

3. Features

To prevent foreclosure, you can take advantage of a one-time partial claim from your FHA-insured loan if you are 12 months delinquent. Your lender will be reimbursed by the FHA insurance pool and your mortgage will become current. You then owe the partial claim, through a promissory note, to FHA in case you refinance or sell the property in the future.

FHA Foreclosures and Pre-Foreclosure Expert Insight

According to experts FHA is the largest government mortgages insurer in the world and it is the driving force in depressed housing markets. Although you can find that their foreclosures are high, it’s mainly due to the fact that they have more customers than any other and not because of its guidelines. Their ability to mitigate the problem of loan defaults has helped them maintain a low foreclosure rate relative to the number of customers they have.

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