Introduction to Foreclosure

Foreclosure is a legal process of mortgage holders, also known as lenders, repossessing ownership rights over a home or property in the event mortgagors, or borrowers, default on their mortgage payments.  As part of most mortgage loans, the money borrowed by homeowners is secured, or backed, through the collateral of the piece of property being purchased.  Through retaining the ownership rights to a piece of property, mortgage holders can sell the property in a foreclosure proceeding in order to liquidate the property and collect the outstanding balance on a mortgage agreement or loan.

Foreclosure Terminology

A number of conflicting terms arise when discussing foreclosure and the parties involved in this process, however, a brief introduction of the entities involved in most foreclosure proceedings includes:

  • Mortgagors- This individuals are the homeowners who have borrowed money from a mortgage holder to purchase a home or property.  Other terms include borrower or person in default.
  • Mortgage holders- These entities lend money, in the form of a mortgage, to homeowners.  Typically, mortgage holders are banks and other lending institutions.  In foreclosure discussions, mortgage holders also go under the terms lender, lienholder, or mortgagee.

When mortgagors fail to meet payment agreements set forth in the terms of a mortgage, they fall into a state known as “in default.”  By being in default on mortgage payments, mortgage holders can retain their right to ask a court of law to terminate a mortgagor’s equitable right of redemption.

  • Equitable right of redemption- A homeowner’s right to retain their home or property and essentially, make good on outstanding payments prior to foreclosure proceedings.  Once a foreclosure court decides lenders have a security interest in a home or property in default, through the lenders’ security interests stated in a mortgage agreement, lenders can then lien, or prepare to foreclose, a property through a number of methods.

The Foreclosure Process

Foreclosure is a judicial proceeding, in which all parties must be alerted to the intentions and actions of the other, and the request to terminate and retain a homeowner’s equitable right of redemption is the first judicial step in foreclosing a property or home.

Following this judicial process, a property or home will face foreclosure proceedings in accordance with applicable state laws.  Each state has their own slightly, and in some instances widely different, foreclosure laws, which only a real estate lawyer in your state can accurately explain to persons facing foreclosure.  However, across the nation, there are two main types of foreclosure proceedings that seek the same results in end.

The two most prevalent foreclosure processes homeowners face in the United States include:

  • Foreclosure by judicial sale, which involves the sale of an in default and foreclosed home or piece of property under the supervision of the court system.  This process is a legal action, and both parties, mortgage holders and homeowners facing foreclosure due to inability to meet mortgage payments, will convene for a brief trial in front of a judge.  
  • Foreclosure by power of sale, which does not involve the supervision of the court system, but allows for lenders and homeowners to liquidate the proceeds of the sale of a home to satisfy outstanding debt obligations.  In the majority of cases, this is usually a faster method of foreclosure than foreclosure by judicial sale.

Both of these variations of foreclosure seek to achieve the same goal for lenders.  Lenders will sell the foreclosed home or property and collect the sale proceeds in order to satisfy the outstanding mortgage debts owed to them by foreclosed homeowners.  After the mortgage holder collects on their lien claims, other lien holders can collect on claims, and after all debts are satisfied, the mortgagor, or homeowner, collects any remaining proceeds of the sale.

Within each state, there are laws and processes available that allow other forms of foreclosure.  One of these includes strict foreclosure, which historically was the only method of foreclosure, however, as laws and times have changed, this process has received much less popularity.

Strict foreclosure- Allows lenders to foreclose on a defaulted borrowers’ home or property in the event of default on mortgage payments.  Under strict foreclosure, however, lenders have no obligation to sell or distribute proceeds from the retained ownership of the defaulted property or home.

    a real estate attorney to find out more information on foreclosure and processes.
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