July 26, 2017

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Foreclosure Law

Foreclosure occurs when a lender (mortgagee) who owns (holds) a mortgage on property, seeks to recover outstanding payments that the borrower (mortgagor) has failed to make on time (default).

Lenders often prefer to work with the borrower, rather than foreclose, but you will need the assistance of a Real Estate Attorney experienced in foreclosure laws or to ensure you make the right choice.

View qualified Real Estate Law Firms in your area to find Foreclosure or Real Estate Lawyers to get help with this process.

Foreclosure Process

A mortgage is given as security (collateral) by the owner of property in exchange for a loan. Once an owner/borrower has failed to make the payments as stated in the mortgage agreement, the lender (typically a bank) must take steps to ensure its loan is repaid. Generally, these steps are:

  • Notify the owner/borrower of his default
  • The owner/borrower is given time to cure the default (pay everything due and past due)
  • If not cured (redeemed), the lender proceeds with foreclosure
  • Notify the owner/borrower of the foreclosure sale
  • The sale is typically an auction
  • If the winning bid is less than the amount owed on the mortgage, a deficiency judgment may be entered against the owner/borrower for the difference
  • Typically, the winning bidder will send the borrower a Notice to Quit
  • The borrower must vacate the property, often in as little as 3 days

In some states, the owner/borrower may redeem the property even after the sale, and in half the states, the equitable right of redemption allows for the repayment to occur up to the day of sale. In most states, the owner/borrower may pay off the entire loan (including the costs of foreclosure) and end the foreclosure at any time prior to the sale.

Types of Foreclosures

Three types of foreclosure are:

  1. Judicial Foreclosure occurs when the lender brings a suit in court. The owner/borrower usually has 30 days to cure the default and end the foreclosure.
  2. Power of Sale or Non-Judicial Foreclosure is an out-of-court process where the lender simply notifies the borrower of its intent to foreclose, and after a waiting period, if the default is not cured, the lender sells the property.
  3. Deed in Lieu of Foreclosure or Strict Foreclosure is a contract remedy where the lender simply claims the property’s title in satisfaction of the debt.

Avoiding Foreclosure

Common methods of avoiding foreclosure include:

  • Refinance the home (with its equity)
  • Modify the loan terms
  • One-time FHA (Federal Housing Administration) payment for qualified loans
  • Bankruptcy filing whose automatic stay will stop the foreclosure process
  • Lender-approved short sale (where the sale is less than the loan, but still a good deal for the bank)
  • Forbearance of current payments which are tacked on to the end of the loan period or included in a balloon payment to come later

Related areas:

Real Estate Law, Bankruptcy, Secured Transactions, Collections