The Faces and Phases of Foreclosure

The process of Foreclosure is applied by a bank or housing finance which has commissioned a mortgage by keeping the temporary rights of a real property as security. It happens in earnest when the borrower fails to comply with the pre-contract terms, a situation known as default. The reason as to why the mortgagee seeks to foreclose must be clearly indicated in the terms of contract, otherwise this may be a futile exercise which can be reversed by law should the mortgagor file a lawsuit.

There are two major types of foreclosure in the U.S., Judicial and Non Judicial foreclosure. Though there are multiple types, we’ll look at these mostly applied versions.

Judicial foreclosure: – the name itself must speak volumes about this system of foreclosure. Yes, it involves the judiciary in that the overall overseer of the process is the court of law. The claimant who stands to be the mortgagee starts by seeking a lawsuit against the mortgagee in the event a breach has been exposed. They will the serve them with a notification of the foreclosure after which the plaintiff or the borrower will make any necessary counter measures. The real property sale is commissioned by a sheriff through an auction, whereby the proceedings will go towards paying for the mortgage capital or principal. Other costs are placed second and can be covered if the outcome is favorable. It should also be noted that the lender in their capacity as the claimant has the option to bid for the same property and can do so on credit terms.

Non judicial or power of sale foreclosure: – this is a system whereby the mortgagee can handle the process without the involvement of the courts according to a clause in the pre-contract terms document. This normally follows a situation in which a deed of trust was used in the mortgage arrangements as opposed to a real property remittance. If the mortgagor fails to pay their principal and interest fees in the correct order, the mortgagee will consider that a default and is free to subject the borrower to foreclosure. The borrower on the other hand may seek to stop the process by using a court of equity. Filing for bankruptcy is a way of delaying the process and can be adopted by the accused if they can correct the default in good time to redeem their immovable property from imminent sale.

Should the process of foreclosure progress successfully, the right of ownership is given to the new owner who has the highest bid and has completed the formalities with the previous owners.

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