What is a Foreclosure?

Posted by admin on February 2, 2010 under Real Estate License Basics | Be the First to Comment

Understanding foreclosure is important to your success in real estate today.

Having a real estate license means you will be expected to understand many processes that fall outside the realm of real estate sales. You likely learned about this in real estate school but generally speaking, foreclosure is the name for the legal process in which the mortgage holder regains the property if the loan is defaulted on. When the homeowner can not keep up with the terms of the mortgage and falls behind the lender begins the process of foreclosing on the home. There are a few different methods of foreclosure proceedings, depending upon the state in which you live.

The most common method of foreclosure is the judicial foreclosure. When the loan is defaulted on, the lender files a lawsuit against the borrower. The summons and complaint are presented to the borrower and they are given the opportunity to respond to the complaint. If the borrower does not file a response to the complaint, then the lender is automatically awarded the judgment. A court appointed referee will calculate the total amount due on the property including the balance left on the mortgage along with any other interest and legal fees. The lender is then required to advertise the property for sale at that price for a period of no less than four weeks.

If the amount needed to cover the costs of the original loan are not recovered with the sale of the property, then an aution will be held. The property will be sold to the highest bidder. Depending on the state that you live in, if the auction does not bring in a high enough bid to cover the total due for the property, then lender could possibly get a deficiency judgment against the borrower in order to recover the total amount they are owed. There are a few states that do not allow lenders to impose deficiency judgments against a borrower. The entire process of a judicial foreclosure can take anywhere from 90 days to up to a year or more, depending on the number of foreclosures in the area.

Non-judicial foreclosure is also known as “power of sale”. This allows the lender to foreclose without filing a lawsuit. Instead of issuing the borrower a mortgage, the lender grants them a deed of trust. Upon defaulting on the loan, the lender will file a notice of default and notice of sale before the property is advertised for sale. Unlike a judicial foreclosure that can take several months, the non-judicial foreclosure process is usually completed within 90 days There is also a method known as strict foreclosure where the borrower has a predetermined period of time in which to bring the loan out of default. If they are unable to do so, the title reverts back to the lender automatically. Many states offer borrowers the opportunity to reinstate their loan by paying the amount in default, including interest and fees, prior to the sale.