What is Foreclosure?

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"What is Foreclosure?"
Many people have only the gist of what foreclosure is. We take the time to make sure you understand: Foreclosure is the closure or termination of the homeowner's right to his or her property. It is a legal process initiated by a lien-holder, usually the lender, to gain ownership of the property as well as the right to sell it and use all proceeds to satisfy the mortgage loan in default. In other words, when you stop paying your mortgage and fail to negotiate your options to either stay in your home or sell it, your home will eventually be repossessed and sold at a foreclosure auction.

Types of Foreclosure
Now that we've answered the question 'What is Foreclosure?' by defining it, we must also be sure you understand there are different types of foreclosure that exist in the U.S. and two are widely used: Foreclosure by Judicial Sale and Foreclosure by Power of Sale. Other foreclosure modes such as "Strict Foreclosure" are less common, but still plausible in a few states.

Security Documents
When a borrower defaults on a loan and such default leads to foreclosure, the step-by-step process and development of the foreclosure event will be determined by the type of security document (loan document) utilized in the state where the property is located. When you purchased your property you either signed a "Deed of Trust" or a "Mortgage Agreement". Although they are both security documents that allow the lender to repossess your property if you default, their foreclosure procedures are actually distinct.

Timelines
In general, the lien-holder initiates the foreclosure process at a predetermined time specified in the mortgage documents. In the past, the foreclosure process would last about six months. However given the recent surge in home foreclosures and all pending mortgage modifications, foreclosures have become much lengthier actions. Lenders are typically the lien-holders engaging in foreclosures, however, other entities can do the same for other debts such as overdue taxes, past-due contractor's bills (Mechanic's lien) or unpaid homeowners' association dues or assessments.

After Foreclosure
Whenever the sale of the foreclosed property results in an amount that is insufficient to completely satisfy the debt and if a "Recourse Clause" is present in the Mortgage Agreement or Deed of Trust, the lender can file a claim for "Deficiency Judgment". Loans said not to contain such clause are called Non-Recourse loans. If a member of the military is one of the owners of a property facing foreclosure, there are additional safeguards required by federal and in some cases, state laws as well.

Home foreclosure is a fearsome and traumatic experience for any homeowner regardless of the circumstances involved. There are some foreclosure options you should consider if you are in default.