What Is Foreclosure?
We’ve all heard of foreclosure before, but so many people don’t actually know what it is. Understanding what foreclosure is all about can help you avoid the situation, or make the best decisions should you find yourself in a situation where foreclosure seems inevitable. Foreclosure is a fancy word for a legal proceeding in which a bank or another secured creditor sells or takes possession of a piece of real property because the owner failed to comply with an agreement between the lender and the borrower, typically known as a mortgage or deed of trust. The failure to comply is usually the default in payment on a promissory note, and when the foreclosure process is complete the lender will have “foreclosed its mortgage” on the property.
Now that we’ve said what foreclosure is in technical terms, it basically means that for one reason or another the person that is paying on the home or property hasn’t been paying their mortgage for one reason or another. When you don’t pay your mortgage and you do not make a reasonable effort to repay the debt, the bank or lender has no option but to take the property back from you and try to sell or auction the property and regain the money they have lost.
deed in lieu
In most of the common law states inside of the United States there are two types of foreclosure. In many states there is a “ of foreclosure” that basically means the bank will claim the title of the property as well as possession of the property and will satisfy the debt. The property is usually then auctioned by the county Sheriff or another officer of the court. Many states actually require that the land must be auctioned to protect any equity that the debtor may have had in the property, and is also thought to dissuade those that plan on strategic foreclosure. If there is an auction, the Sheriff simply will issue the deed of the property to the highest bidder. It’s not uncommon for banks and lending institutions to bid in the amount of the debt still owed at the auction, hoping that no other buyers will outbid them and then they receive the title to the property and can resell it at their leisure, which will allow them to profit from the property.
non-judicial foreclosure
Other states have a more non-judicial foreclosure proceeding that simply gives the person in debt a notice of default and the intent of the lender to sell the property in whatever manner is allowed by state law. This is often referred to as a “power by sale” foreclosure and if the debtor does not do something to rectify the situation such as pay off the debt to bring the mortgage current, or file for bankruptcy the representative of the bank or lender can then auction off the property much like the Sheriff or court officer would in the above mentioned type of foreclosure. The highest bidder from the auction will then become the owner of the property, free of any interest from the previous owner. One thing that is usually not cleared in foreclosures such as this are liens that might be against the property, so the new owner would need to pay these off. The new owner might also be responsible for eviction if necessary, as well.
Strict foreclosure
Strict foreclosure is another right that is available in some states, though not all of them. Strict foreclosure is a process that takes place after the foreclosure sale takes place and is available to the foreclosure sale purchaser. The purchaser is required to petition the court for a decree that will stop the payment to any junior lien holder to redeem the senior debt. If the junior lien holder does not respond, then the debt is forgiven and the title is in the clear.
A lien against the property is not usually something that is unforeseen because when a foreclosure takes place, the lender or bank typically will draft a letter to all lien holders notifying them that the property is in default and will be foreclosed on. This notification allows the lien holders to appear in court and state their interest in the property so that they may get some of the debt repaid, if not all of it. The federal government has rules about giving lien holders and the government at least 25 days to state their interest in the case before the home is foreclosed on, or the debt can be held against the home in the form of a lien even after the home sells, making it the responsibility of the new owner, which no one wants.
Foreclosure is not something that anyone wants to experience, but sometimes, it happens to the best of us because of situations beyond our control. This article gives a brief overview of exactly what foreclosure is, so that one can see it in its clearest terms with no emotion or stress attached to it. When you are involved in a foreclosure on your home or property there will obviously be emotions and stress involved, but if you understand exactly what will happen and why, you’ll be able to make good decisions about whether or not you should try to pay off the debt, if you should try to sell, if you should file for bankruptcy, or if you should just let the home or property be foreclosed on.
Thankfully, foreclosure is not something that will happen over night or something that will happen without your knowing it. Your bank or your lender do not want to foreclose on your home, so if you show that you really want to get back on top, you will probably find a way to keep from having your home or property foreclosed on. Don’t be afraid to try to stop foreclosure, because you can stop it and get things in order. On the flip side, if your home is being foreclosed on don’t feel like you are the first person that it has happened to because it happens to good people all the time.
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