Be Prepared and Know Foreclosure Facts

Foreclosure is the professional and lawful process in which a person who mortgages, or another lender of property, acquires a termination order from the court. Most commonly, a lender receives a security interest from the person mortgaging property to seal the loan agreement.

If the person borrowing does not meet his or her legal and financial obligations and the lender attempts to take over the property, the borrower can obtain a right of redemption from a court of equity once he/she repays the debt. While the right to obtain equity is in place, the lender cannot be certain that it is capable of being put into effect to maintain control of the property. Therefore, the lender aims to "foreclose" the borrower's right of redemption.

In the case of residential mortgage loans, the foreclosure process can be called into play when a secured creditor repossesses or sells a section of real property after the owner has proven unable to fulfill the agreement between lender and borrower.

Usually, the transgression on the mortgage agreement is a failure to abide by a signed promise to pay, otherwise known as a promissory note. Once the process is finished, the lender is allowed to sell the property and hold onto the profits to pay off the mortgage as well as any legal fees. If the agreement to pay was made with a recourse clause and the sale does bring the promised sum of money to offset the fees, the mortgagee can sue for deficiency judgment.

There are different types of foreclosures that can occur. "Foreclosures by judicial sale," more often referred to as "judicial foreclosures," are associated with the selling of mortgaged property under scrutiny of a court. The profits initially go to those who meet the terms of the mortgage, then to other security interest holders, and lastly, to the borrower should any proceeds remain.

Through this system, the lender begins the forclosure process by filling out a lawsuit against the borrower. A process that is known to be more efficient is "foreclosure by power of sale," in which the mortgage holder sells property in absence of a court.

A main process involved with foreclosures is acceleration, which is utilized to figure the amount owed during foreclosure. Once a part of the mortgage is violated, the mortgage holder is free to stipulate that the defaulted mortgagor must pay his or her entire debt immediately.

Any unpaid taxes on property can also be added to the debt, and if the borrower does not possess enough equity, he or she will owe more than the original sum of mortgage.

Based on the laws within each state, foreclosures can occur rapidly or slowly. Problems can often arise, as some lenders are unable to foreclose property because of due process and other constitutional issue. A debtor can potentially challenge a debt's validity to stop foreclosure from taking place and suing for damages. In this form of proceeding, the lenders must prove that they have the right to foreclose.

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