A foreclosure can formally be defined as the act of a lien holder, bank or other such entity terminating the ability for a mortgagor to redeem their property or equity within. This process is usually due to default, and forces the sale of property; often by auction. The proceeds of such sale are used to fulfill the debts owed in the case of default, as well as additional costs due to the lien holder.
In an economy that is being financially tossed upside down, foreclosures are unfortunately becoming more of a regularity in today’s world. This court-ordered event can take place for many reasons. The most common reasons for foreclosure are: overdue taxes, unpaid contractor bills, unpaid or late homeowners association dues or other collective debts.
There are several types of foreclosures. The two types most widely used, are:
Foreclosure by Power of Sale: This ‘power of sale’ clause if often written right into the mortgage or deed of a home. It is also known as non-judicial foreclosure. The lender files a lawsuit against the borrower post-default. This process then includes the sale of a property by the mortgage holder. It is a much quicker and cheaper option than most, but may still require a great deal of paperwork and hassle for the borrower.
Foreclosure by Judicial Sale: This type of foreclosure is available in all states, although requirements may vary from state to state. The sale of the property is monitored by a court, with the proceeds of the sale going to fulfill the debt on the mortgage. The remainder of the proceeds go to debts owed to the lender. These hearings will often occur in state or local courts. Vary rarely, such a case will take place within a federal court.
There are several other types of foreclosures, although, they are rarely used due to their limited availability. The length of time for a foreclosure to take place can vary from state to state. Terms of short sale, special arrangements with the lender or refinancing can assist homeowners in avoiding foreclosures temporarily. Some homeowners may even claim bankruptcy to attempt to avoid the foreclosure of a home indefinitely.
A foreclosure can also be contested, if the debtor believes the debts are not valid. The bank or lien holder may be sued, in this instance, to stop the foreclosure from progressing. The bank or lien holder can also be sued to collect additional damages due by the borrower. As foreclosures can remain on an individual’s credit report for up to seven years, it is always worth asking a professional for assistance or opinion.
On the flip side of a foreclosure occurring for a homeowner, an individual or family who may not have been able to afford a home initially, may find foreclosure homes to be more affordable. Although the strict loan applications via banks will remain, other lenders are often negotiating loans for ‘as is’ foreclosures each day. Consulting a professional regarding the loss or gain of a foreclosure home is recommended. As it may be a lengthy process from any angle, seeking the correct assistance is always in your favor.
Steven Medvin is the Executive Director of SMP Advance Funding, LLC, which provides lawsuit funding to individuals who need a lawsuit loan for pending lawsuits. For more information please visit: https://www.smpadvance.com
