A lender, which can be a bank or financial institution, claims possession of property belonging to the person who borrowed the money and used the property as collateral. This legal process is done because the borrower stopped making payments to the lender.
This form of foreclosure is available in all states and is required in some. It begins with the sale of the property that was mortgaged. Foreclosure is done under court supervision and the proceeds go first to pay off the mortgage. Then if there are more bondholders then they get paid and if there are any profits left after all debts are paid, the borrower gets what is left. Under this type of foreclosure, the lender initiates the foreclosure by filing a lawsuit against the borrower. In any legal proceeding, all parties involved must be notified, but the requirements will vary from state to state. The short hearing is held in a local or state court and then the judge will make his or her decision.
This form of foreclosure is known as foreclosure by power of sale. In many states, this is authorized by a power of sale clause that is included in the mortgage. The legal process involves the sale of the property by the lender without court supervision. Doing it this way is cheaper and much faster. As with judicial foreclosure, the mortgage holder and other lien holders are paid first with the proceeds of the sale and what is left for the borrower.
The other two types of foreclosure are considered minor due to their limited availability, but under a strict foreclosure, the mortgage company files a lawsuit. If successful, the court will order the delinquent borrower to pay off the mortgage within a certain period of time. If the borrower is unable to do so, the lender receives title to the property, but is under no obligation to sell the property. This type of foreclosure is available in some states, such as New Hampshire, Connecticut, and Vermont. This form of foreclosure is generally only available when the value of the property is less than what is owed.
When you are notified that your property is going to be foreclosed, you will need to decide if you will help your financial problems to make it happen. If your financial problems are going to be temporary, like a sudden job loss, you should talk to your lender and explain the situation. There may be a temporary solution to the problem and the foreclosure may be postponed for a certain period of time.