Can a Private Lender Initiate a Voluntary Foreclosure?


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Foreclosure of a property is often devastating to the person that is leasing or that owns the house. There are several processes involved in this event, and the lending agency holds the most power over the entire situation with the ability to initiate a voluntary foreclosure in usual circumstances.

The lending agency in a contract with a buyer that has a financial arrangement could initiate foreclosure processes, but when this is a private lender, this could become more complicated. The private lender must provide all necessary documents to the homeowner, and only when the lien or loan goes into default do these foreclosure procedures usually commence. The person buying the house is afforded a certain amount of leeway when the conditions within the purchase agreement are in effect. However, if he or she has not been making payments or the lending agency is not receiving enough of the principle plus interest each month, the person behind the private lending institution has the rights to start foreclosure.

Sometimes, the private lending agency or person will initiate the foreclosure proceedings to enforce the lien on the home and to acquire funds from the homeowner. The borrower is given a 30-day notice of possible foreclosure, but many of these processes are similar to standard foreclosure with a bank or major financial institution. The 30-day notice may be used to gather as many funds together and remove the default so the borrower may recover. However, if the homeowner does not have the money needed to make up for the default, he or she may be pushed through foreclosure and lose the home.

Private Lender Details

When a private lender has initiated all the correct paperwork and has provided official documentation, he or she may be considered the appropriate lender on file. When the local offices governing real estate matters have this person listed as the lending agency or individual, he or she should have the ability to initiate foreclosure procedures when it appears the homeowner is not going to make good on the borrowed amount. This could involve a large chunk of cash, a smaller portion that is used as a lien or a loaned amount that goes through official channels such as a bank. The more paperwork in place to show the deal as legitimate, the greater a claim the private lender has in following up with a foreclosure.

Mitigating the damage from loaned funds not received may cause the private lender to initiate the foreclosure procedures. If the borrower has been contacted and given notice, he or she should communicate about the complications in paying. With a private lender, this could lead to further adjustments to the deal. However, if there is no communication or any methods used to make good on the loan or lien, the lender should start foreclosure. The official notice provides the first 30 days to payback the backed-up payments. Then, the house may be placed in a status to get ready for auction.

The Foreclosure and Legal Help

Once the private lender has discovered that the loan or lien has defaulted, he or she starts the foreclosure process against the borrower. A physical written default notice is the formal notice that starts the procedure off. Once the 30-day grace period ends, judicial or non-judicial foreclosure may be pursued. Some states only permit one or the other, and a few allow both. Before the house goes up for auction, the homeowner has the chance to cure the default and provide the funds to secure the home. However, if property usually is sold at a public auction with the highest bidder becoming the new owner. However, the lender may also purchase the property and sell it later.

An unlawful detainer suit is often filed next to ensure the previous owner is evicted if he or she remained within the house in the duration. It is important for a private lender to hire a real estate lawyer to assist with these processes. This may ensure all steps are valid and legal. There may be additional steps based on the state involved in these matters, and a real estate lawyer and other officials may take part of these proceedings. If the matter needs to go to court, legal representation is beneficial in keeping the concern valid, relevant and to pursue action against the default borrower. If these two parties have a relationship, this could end it and lead to eviction, final foreclosure processes and the sale of the house.

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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer.

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