Real Estate Foreclosure Process
There are two types of foreclosures in the United States. They are “strict foreclosures” and non-judicial foreclosures. Under “strict foreclosures,” the bank claims the title and possession of the property. Then, the property is put up for auction by the county sheriff or some other officer of the court. Next, the sheriff or officer of the court issues a deed to the highest bidder at the auction.
In a non-judicial foreclosure, the mortgagee (one that holds the mortgage) or the mortgagee’s attorney notifies the homeowner of their neglect and the mortgagee’s intent to sell the property. If the homeowner does not make the payments or use other lawful means (such as filing for bankruptcy), the mortgagee will have a public auction.
In both these cases, a notice of default is issued.
A real estate foreclosure is a legal process whereby a loan covering real property that is in default is “called in” by the lender, who then takes the collateral pledged by the buyer – which is undeveloped land, a home or a commercial building – for the purpose of regaining the money owned and unpaid by the buyer.
In order for the lender to be able to take possession of the property on which the mortgage is in default, the lender must petition the court for approval to do so. After the lender has shown “just cause” to the satisfaction of the court to prove at least three months of mortgage payments were not made, an official Notice of Default is filed.
Notice is then published in a local newspaper. This Notice is to be repeated weekly for a period of three months. During this period of time, the borrower may stop the impending foreclosure by satisfying the default.
If no action is taken by the borrower during the time allowed to halt foreclosure proceedings, the trustee will publish a Notice of Sale. In accordance with the law, Notice of Sale must be published weekly for a period of three weeks. Throughout this period of time and up to the actual auctioning of the property, the borrower may still stop the proceedings by curing the default.
Once the trustee initiates the sale, the property is offered to the highest bidder. If no acceptable bids are received or no bidders present, the property will revert to the lender which can be either an individual or lending institution. The lender, now in possession of the property, can make arrangements – usually through a real estate broker – to sell the property- even though the prior owners have not yet moved out.
If a property is encumbered by more than one mortgage, the primary or first mortgage holder dictates the acceptable sales price. This can mean that the original or senior lender can accept an amount sufficient to pay off the loan regardless of market value. This can leave the second (or junior) mortgage holder or holders out in the cold.
On the other hand, second mortgage holders may attempt to rescue their investment by themselves purchasing the property from the senior mortgage holder and thus, will have the opportunity to resell the foreclosed property at a profit.
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