Foreclosure is a legal process by which a bank or a creditor auctions, sells or posssesses an immovable property, when the owner fails to repay the lender the borrowed money. The agreement between the lender and the borrower is called a mortgage or a deed of trust. Usually foreclosure is resorted to when the borrower defaults on payment and the agreement is secured by a lien on the property.
Foreclosures are of two types in the United States, namely judicial foreclosure and non judicial foreclosure.
Judicial Foreclosure: In judicial foreclosure the foreclosure is basically a type of lawsuit. These are also called deed in lieu of foreclosure. In this case the lender files a lawsuit against the borrower for foreclosure on the borrower's property. These are long drawn out affairs. In the end the court appointed officer or the county sheriff auctions the property. Most states have mandatory judicial foreclosures on default of payment. This is done to protect any equity in the property or when the value of the property is much larger than the amount of debt.
Non Judicial Foreclosure: Non judicial foreclosure is authorised in some states like Florida, in which the lender need not file a foreclosure lawsuit. This is also referred to as power of sale.The lender usually gives a legal notice to the borrower of their intention for foreclosure in a form prescribed by state statute. In this case the public auction is held by the mortgagee. The highest bidder becomes the owner of the property without any effect of the earlier interest. Usually an eviction is required in such cases for possession of the property. Non judicial foreclosures do not take much time.
Filing for bankruptcy provides a temporary stay to the foreclosure . It is mandatory for the lender who is foreclosing to notify all persons who may have a lien on the property. The lien may be by contract, by statute or other law or through court order. In the United States, a 25 day notice of sale has to be given to the Internal Revenue Service by the foreclosing lender.
Contrary to popular belief purchasing of foreclosure property is not as profitable as it seems and is fraught with risk. Hence when purchasing a foreclosure property it is prudent to see all the liens and agreement copy and also to obtain a fair market value of the property before bidding. On the other hand a loan is a serious issue and a borrower should treat it accordingly by not defaulting on payment.
