Foreclosure

An Overview 

Contents:

 

Introduction

Foreclosure is a catch-all term for the processes used by [[wex:mortgagee|mortgage-holders]], or [[wex:mortgagee|mortgagees]], to take [[wex:mortgage|mortgaged]] property from borrowers who [[wex:default]] on their [[wex:mortgage|mortgages]]. Foreclosure, like [[wex:mortgage|mortgages]] generally, is governed by the law of the place where the [[wex:mortgage|mortgaged]] thing is.

Default

The foreclosure process may begin once a [[wex:mortgagor|mortgage borrower]], or [[wex:mortgagor]], falls so far behind on her [[wex:mortgage]] payments that she enters [[wex:default]]. The conditions for entering [[wex:default]] vary, based on state law and terms in mortgage agreements. Once a [[wex:mortgagor]] enters [[wex:default]], she starts to accumulate late fees, legal fees, and other charges that are added to her outstanding debt, as determined by the mortgage agreement and state law.

[[wex:mortgagee|Mortgagees]] do not have to foreclose on [[wex:mortgage|mortgages]] that are in [[wex:default]]. They are free to negotiate with [[wex:mortgagor|mortgagors]]. For example, they might agree to adjust the terms of the [[wex:mortgage]], refinance, allow the [[wex:mortgagor]] to sell the property, or allow the [[wex:mortgagor]] to make up for his or her missed payments.

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Types of Foreclosures

There are two types of foreclosure: [[wex:judicial_foreclosure|judicial foreclosures]], which require a court order, and [[wex:non-judicial_foreclosure|non-judicial foreclosures]], which do not. In [[wex:judicial_foreclosure|judicial foreclosures]], the [[wex:mortgagee]] must go to court and prove that  it owns the [[wex:mortgage]] and has the right to foreclose on it. [[wex:non-judicial_foreclosure|Non-judicial foreclosures]] allow a [[wex:mortgagee]] to foreclose without going to court. This is cheaper and quicker than a [[wex:judicial_foreclosure|Judicial Foreclosure]]. [[wex:non-judicial_foreclosure|Non-judicial foreclosures]] may only be used where the [[wex:mortgage]] has a [[wex:power-of-sale_clause|power-of-sale clause]]. These clauses most often appear in [[wex:deed_of_trust|deeds of trust]], a type of real estate [[wex:secured_transactions|secured lending instrument]] similar to a [[wex:mortgage]]. 

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Acceleration Clauses

Most [[wex:mortgages]] now include [[wex:acceleration_clause|acceleration clauses]]. According to these clauses, if borrowers falls far enough behind in their payments, the rest of the loan is due immediately. [[wex:mortgagor|Mortgagors]] usually invoke these clauses as a prelude to foreclosure. Most states regulate [[wex:acceleration_clause|acceleration clauses]], either generally, as specifically as applied to mortgages, or both.

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Mortgage-Backed Securities

In recent years, lenders frequently bundled groups of mortgages into [[wex:mortgage_backed_securities|mortgage-backed securities]], and then sold shares of the securities to investers. As a result, some [[wex:mortgage|mortgages]] have many owners. Others have changed hands so many times that it is difficult to determine who actually owns them. As a result, it is often difficult for [[wex:mortgagot|mortgagors]] to modify the terms of their [[wex:mortgage]]. Similarly, [[wex:mortgagee|mortgagees]] might have trouble proving that they own a [[wex:mortgage]] they want to foreclose on.

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Sale of Foreclosed Property

Most states require [[wex:mortgagee|mortgagees]] to sell foreclosed property at public auction. If the property does not sell at auction, the [[wex:mortgagee]] keeps it, and later resells it in a normal real estate sale. State laws vary regarding what happens if foreclosed property sells for less than the [[wex:mortgagor|mortgagor's]] unpaid debt. In some states, [[wex:mortgagor|mortgagors]] are liable for the difference. In others, they are not. In every state, if the property sells for more than the [[wex:mortgagor|mortgagor's]] unpaid debt, the mortgagor gets the difference.

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Right of Redemption

In some states, [[wex:mortgagor|mortgagors]] have a [[wex:right_of_redemption|right of redemption]] that allows them to get back foreclosed property. If the original [[wex:mortgagee]] owns the property, [[wex:mortgagor|mortgagors]] may exercise the right by paying the bank the unpaid balance of their mortgage. If the property was already resold at auction, [[wex:mortgagor|mortgagors]] must pay the purchaser whatever he or she paid for it. [[wex:right_of_redemption|Rights of redemption]] only last for a limited time, which varies by state.

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Timing

Once [[wex:mortgagee|mortgagees]] begin the foreclosure process, it may take them six months or more to get clear title to the [[wex:mortgage|mortgaged]] land, depending on the state, foreclosure type, and type of [[wex:mortgage]].

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Related Topics

[[wex:debtor_and_creditr|Debtor and Creditor Law]]

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Other References

Key Internet Sources