Foreclosure

July 30, 2009

Foreclosure is a legal proceeding where a lien or a mortgage holder, usually the lender obtains a termination ordered by the court for a mortgagor’s right to redemption. The lender obtains from the borrower a security interest or the borrower pledges a house which is an asset to obtain the loan. In case of default by the borrower, the lender can repossess, but the courts according to this legal proceeding, can allow the borrower the right to redemption if the debt is repaid. Other lenders can foreclose the right of redemption of the owner in case of debts such as taxes which are overdue, contractor’s bills unpaid and various dues.



When a homeowner defaults a promissory note payment it is considered a violation of the mortgage. The lender is able to sell their property at the completion of the process and keep the earnings to settle the mortgage and legal costs, if any. In case there is a recourse clause in the promissory note and the earning made off the sale are insufficient to settle the mortgage and additional fees, the homeowner can file for deficiency judgment.

Once a default has occurred the lien holder can request for foreclosure at any given time as mentioned in the mortgage document. One type of foreclosure is known as judicial foreclosure. This foreclosure is done as supervised by a court where the earnings received under the sale is first to settle the mortgage and then to other holders and if any left to the borrower. All parties involved must be informed of the foreclosure. Pleading are made at a court thereafter a judicial decision is made at a local hearing which is usually short. In a rare instance a foreclosure may be filed at a federal court.


The second type of foreclosure is foreclosure by power of sale. A clause which states power of sale is included in the deed or the mortgage trust. This does not involve supervision by the court. A mortgage holder can sell their property accordingly. This process tends to be quicker than the judicial sale. This is similar in the sense that the earnings will first go to settle the mortgage loan and other loans respectively. There is another foreclosure practiced by a few states known as the strict foreclosure. The court will give the defaulter a specific time period to settle the mortgage loan.

Foreclosure can be lengthy or rapid depending on the state and their regulations. There are several ways to avoid foreclosure such as alternate financing, short sale, temporary arrangements and even bankruptcy. Websites, blogs and chat rooms provide homeowners facing foreclosure a mechanism to forego traditional methods of borrowing and instead providing diverse mortgage lenders.



Foreclosure can be contested since foreclosure is an action in equity where the right of redemption is considered to be an equitable right. The homeowner can request for an injunction from the court in order to keep the right of redemption. Borrower may be asked to post a bond in such circumstances. This will provide the lender with protection in case the borrower simply wants to escape debt.

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Written by Uncle Sam · Filed Under Mortgage and Loan 

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