Types of Foreclosure

There are many types of foreclosures adopted around the world, but their real pictorial outlook can be summed by the two most commonly used systems namely, Judicial foreclosure or Power of the law foreclosure, and Non Judicial foreclosure or Power of Sale foreclosure. Each of the two types has its typical characteristics and as both names suggest, the former deals with legal matters from the court while the latter handles legal matters out of court. The density of the default by the mortgagor may determine which type of foreclosure to be used according to the lender or mortgagee. A default occurs when the borrower of a mortgage fails to honor the payment of principal as per the agreement, either in part or in its wholeness. For fear of loosing out on the money given out as loan, the lender uses the property given as a security by the borrower as bait to save the situation.

Normally, the borrower is made aware of the unfolding events in time to make any efforts of redeeming property. The situation is considered equity and in line with the regulations laid by the different States, the court may decide to give the borrower some time to gather resources and pay off their debts. This may be followed by the final okay for the foreclosure process to proceed by the court if the borrower does not satisfy the mortgagee via the court.

Judicial foreclosure involves a lawsuit filed by the mortgagee against the mortgagor in a court of law. This is normally some time after the default has been noted. The court has a representative who sees through the process of auction, to ensure that each stakeholder is satisfied and the rights of both the mortgagee and the mortgagor are protected in detail.

In the other type of foreclosure, the non judicial or power of sale, the mortgagee can go ahead with plans to sell property served by the mortgagor as security without the intervention of the law. This follows a clause in the documents of contract that gives them the ultimate power to do the same should a default of a certain kind occur. For instance, if a deed of trust was agreed upon from the onset in lieu of a real property, the mortgagee has the final authority to put up the same property for auction. The intentions must be clear and the objective of the sale must be to cover the difference of principal in unpaid dues along with other costs that might be presumed to have been incurred. This system is cheap and saves a lot of time.

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