Foreclosures:

- When a borrower defaults on a mortgage or deed of trust, or fails to fulfll some other part of
the contract, the lender can initiate foreclosure
= a legal procedure that allows the lender to sell the property used as
security to pay of the debt.
= If the property is sold, any amount of money left over after paying of the
loan and the costs of selling are returned to the borrower.
= Title is transferred to either the lender or to a
rd
party who purchases the
property in a foreclosure sale.
= The property is then free of all liens, including !unior liens on the property.
Types of Foreclosure
methods of foreclosure "depends upon the contract#
1. Judicial Foreclosure
- a sale approved by the court, and is used when a mortgage is the underlying debt instrument
for the property.
- holder of the mortgage, called the mortgagee , gives notice to the borrower, called the
mortgagor, who also has the title of the property, of the defciency, or other breach of contract.
- If the borrower does not respond satisfactorily, then the lender will accelerate the loan, which
entitles the lender to the full amount of the loan plus costs immediately.
- If the borrower fails to pay the accelerated amount, then the lender goes to court to get
approval for the sale of the property, then advertises the sale in local media, so that it can be
sold in an auction.
2. Statutory Foreclosure
- dead of trust - a way to protect the lender of money for property, instead of a mortgage
- the title is held by a
rd
party$the trustee
- has a power-of-sale-clause, that allows the sale of the property without going to
court in the event of a default.
- %tatutory foreclosure is carried out
= if the borrower defaults, then the lender notifes the trustee of the default.
= the trustee may have to record a notice of default at the &'()s o*ce as a
way to give notice to the public about the impending auction.
= The auction is also advertised in the local media, listing the total amount
due on the property
- +fter the property is sold, an afdavit of foreclosure may have to be fled.
3. Strict Foreclosure
- lender may get title to the foreclosed property without any sale
= When the borrower defaults, the lender as,s the court to order the
borrower to pay of the loan.
= The court sets a specifc date by which the borrower must comply.
= If the borrower fails to pay, then the court simply awards full title of the
property to the lender.
Decie!cy Judgme!t
- If the foreclosure sale does not pay of the loan, including accrued interest and costs of sale,
then the lender may also get a defciency !udgment for the diference.
- it can also be obtained against any guarantors of the debt, or
against any owners who assumed the debt by contract.
--- .owever, any amount above the loan amount plus costs is returned to the
borrower.
Deed i! "ieu of Foreclosure "a,a frie!dly foreclosure, deed-i!-lieu#,
- + borrower may be able to prevent foreclosure by simply giving the lender the title of the
property.
- If the lender accepts, the borrower can transfer the title to the lender, eliminating the need of
foreclosure
$thus, it is called a deed i! lieu of foreclosure because it is agreed to by the lender
and borrower.
- +(/+0T+123borower
4. The borrower is released from the debt and does not have to worry about a
defciency !udgment
5. a deed in lieu of foreclosure is less damaging to the borrower)s credit score than a
regular foreclosure.
(I%+(/+0T+123
4. it is listed as a negative item in his credit report
- +(/+0T+123 lender
4. the savings in the time and e6pense of a foreclosure, and
5. the lender is more li,ely to receive the property in better condition
(I%+(/+0T+12
4. the property still has all !unior liens attached, whereas in a regular
foreclosure, all !unior liens are eliminated.
5. The lender will not receive any payment from any mortgage insurance
that the borrower may have had.
#edemptio!
- + borrower may still be able to ,eep his property after a default through the process of
redemptio!.
4. e$uita%le rig&t of redemptio!
- occur before the foreclosure sale.
- If the borrower pays all arrearages plus costs, then the loan will be reinstated.
- If the entire amount is due and the borrower is unable to pay it, then another person may
redeem the property, in which case, the borrower becomes liable to the redeemer of the
property.
5. statutory rig&t of redemptio!
- borrower may redeem the property after t&e foreclosure sale within a certain time,
usually no more than 4 year following the sale.
- + court will generally appoint a receiver to manage the property until the redemption
period ends.
- This gives the borrower clear title by paying the court for the amount of the debt before
the statutory redemption period ends.
Title 'o!veya!ce i! a Foreclosure Sale
- If the borrow cannot or does not redeem the property, then the deed is conveyed to the highest
bidder of the property by the sherif or master-in-chancery free of liens.
- .owever, the deed has no warranties, and conveys whatever title the borrower had.