Foreclosure can be broken down to mean the process by which a mortgagee decides to terminate contract with a mortgagor following a default by the latter. It can be reached by seeking an order from the courts to take away property rights from the borrower or through a legal operation. At the beginning of a mortgage loan process, the borrower puts up real property as a security for the loan they need to secure. The valuation of the property given as security must reflect the amount given as a mortgage so in cases where the contract has been breached the lender will recover their costs.
The borrower can sometimes be protected by the equity court which delays the foreclosure by literally giving them a chance to redeem their property within a certain period of time, failure to which the lender will freely go ahead with the foreclosure. A breach may arise in payments irregularities, which is the most common, or after re-assessment of property worth, or an emergence of a tussle over the real ownership of property given as bait. The density of the default may be so enormous that the lender goes straight to court immediately or applies the power-of-sale foreclosure to avoid further complications which may result to huge losses.
Mortgagees benefit from the sale of property by covering the entire principal extends and other operating costs. The ownership of the property ceases to be with the mortgagor immediately and a new owner gets the valid title deed. Should the amount obtained from the sale of property be less than the amount secured by the borrower as mortgage, or less than the balances unpaid, the lender can file for deficiency judgment.
The lender can commence with the foreclosure process at the time they realize about the breach, as has been clearly noted in the contract documents. There are two majorly used versions of foreclosure, namely;
Judicial sale foreclosure Power-of-sale or non-judicial foreclosure.
Judicial sale foreclosure is a system whereby the court oversees the whole process, with the proceeds first going to cover mortgage and the mortgagee’s other expenses like the legal processes. It is started by the mortgagee filing a lawsuit against the mortgagor. It is the right of the latter to be supplied with information prior to the actual foreclosure so as to make any adjustments like correcting debts.
Power-of sale foreclosure system on the other hand, is typically guided by pre-contract agreement whereby the mortgagee has the right to put up property for sale without notifying the court if they have concrete back up for breach claims. It is mostly applicable where at the time of securing a loan by the borrower, there was no actual property that was remitted but a deed of trust. It is an easier and less costly strategy.