Basic Types of Foreclosure

Foreclosure is a legal process during which a mortgage holder obtains the collateral property because the owner failed to make the appropriate payments on time. States rely on two primary forms of foreclosure, non-judicial and judicial.

A judicial foreclosure involves a mortgage lender instigating a lawsuit against a borrower that has not been making proper payments. If the borrower fails to answer to charges against him or her, the lender automatically wins the case by default. An intermediary is then placed in charge of the case and must determine the total amount that is owed. The lender then has the option of attempting to find buyers that want the property. If the money is not paid within four to six weeks, the property is officially sold at an auction to the highest bidder and the lender receives all of the money. If the final bid is less than the actual amount worth, the lender is then allowed to file a motion in court that demands that the original owner pay the remaining balance. On the other hand, if the lender wants the property for him or herself, he can hire a bidder to bid on his behalf at the auction.

Some states allow a non-judiciary foreclosure, during which the deed to the property is given over to a trustee who represents the lender. The lender can then attempt to sell the property to make up the money.

A lot of states also allow a borrower to redeem his or her property sometime before the actual sale. This requires that he or she not only pay off all of the amount owed, but also takes care of paying all the interest, lawyer and court fees associated with the foreclosure. Some states even allow the borrower to redeem the property after the sale has happened. This usually requires paying a hefty amount of money though.

The bottom line is that if you obtain a mortgage loan to purchase property, that you have a thorough plan of action in place to earn back the money necessary to pay it off entirely. Otherwise, you are either going to end up losing the property or having to pay a lot more than it is worth to re-obtain it once it has been taken from you by the courts.