Foreclosure is a situation in which a home owner fails to make principal and interest payments on their mortgage, so the mortgagee, either a bank of any other financial institution, can be able to repossess and sell the property according to the terms in the contract documents. The main reason for foreclosure is for the lender of the mortgage to recover the principal and cover for any other running costs. Normally, the borrower is deemed to have defaulted when they fail to commit an installment of the periodic payments within the stipulated time. There are other factors too that can be considered a breach of terms and can lead to a worse scenario for the mortgagor, alias borrower.
- In the event that during the agreement a deed of trust was presented in place of real property, the lender may evaluate exclusive details and if there is an irregularity, they should conduct an auction without the consent of a court. This type of foreclosure is known as non judicial or power-of-sale foreclosure.
- In the event that the property baited as security for the mortgage is being contested, like the real ownership is not clear, the lender has no more time and the only thing they can do is start the foreclosure process. The papers presented by the borrower during negotiations will be used in the sale and should there be any complains the borrower becomes liable.
- In the event that the property given as security has been re-valued and the lender realizes that without a shadow of doubt the principal is greater than the real value of the property, there are no chances to take. Foreclosure becomes the only option.
Before the process of foreclosure starts, the lender files a lawsuit versus the borrower in a law court, and then notifies the relevant stakeholders. This system has its fair share in that, the borrower can make a counter upon being served with a foreclosure detail. The court has the authority to delay the process for some time if the borrower pledges to correct the default within an agreed period.
The court oversees the auction of property in the Judicial Foreclosure, where the proceedings are directed to the principal reconciliation, interest and other auxiliary costs. In this type of foreclosure, if the proceedings are favorable enough, the balances are given to the borrower. The biggest loss in this event is that the borrower looses the control of his/her property forthwith, and the highest bidder assumes full ownership.