The mortgage lender does have a valid mortgage on your property, which would allow them to foreclose on your home and then sell it to get the funds to pay off your balance. But – they are also aware that this process is neither simple nor always cost effective for them.
First, they must advise their attorney to begin the process. Next, the lawyer must complete all the paperwork necessary to legally activate this clause, including registered letters to you and any other “interested” lenders (second or third mortgage holders), any private parties or municipalities that have recorded liens against your property, and, always a favorite, state or federal authorities that have recorded tax liens. This process costs money and takes time.
Once the lender/attorney satisfy and complete these requirements, they must then carry out the foreclosure itself. This involves contracting with a licensed auctioneer to handle the sale, advertising the pending foreclosure in the local newspapers, preparing a foreclosure deed and other required paperwork, and, finally, have the on-site foreclosure sale, which is essentially a live auction. This process costs quite a bit of money, which the lender adds to your outstanding balance, and time, which is rarely beneficial to the lender.
The last, and sometimes largest problem, is that the prospective buyers at the foreclosure sale are well aware that the lender has a problem and the bidders expect to get a bargain. This is why a foreclosure proceeding is often called a “fire sale.” It is assumed that the property on which they are bidding is damaged goods. Therefore, if your mortgage lender believes you are serious about keeping your proposed agreement and you have a plan to remedy your situation, they may accept your offer of a reduced payment arrangement.
