What is a foreclosure?
A foreclosure is a legal process where the bank or other creditor takes control of the collateral for a promissory note in default. This collateral is a parcel of real property, and the lender either sells or repossess this property. The process is slightly different from state to state, but there are basically two types of foreclosure, judicial and non-judicial. The type of foreclosure depends on the state. In a mortgage state, the foreclosure used will be a judicial foreclosure and in a deed of trust state, non-judicial foreclosure is used. Florida is a mortgage state, therefore judicial foreclosure will be used. We’ll cover both of these foreclosure legal proceedings in this article.
What is judicial foreclosure?
Used in about half of the states in America, a lender ("mortgagee") brings a lawsuit against the borrower ("mortgagor") to get the property. About half of the states use judicial foreclosure. Like all lawsuits, it starts with a complaint and summons to the borrower.
When in judicial foreclosure, what happens if the borrower doesn’t file an answer to the lawsuit?
In this case, the lender gets a judgment by default. The court then appoints a referee to find the total amount due, including interest and attorney’s fees. Then the lender must put out an advertisement of notice of sale in the newspaper for four to six weeks. If after this process the total amount is still not paid, then a public sale commences, headed by the referee, on the courthouse steps. The lender then must advertise a notice of sale in the newspaper for four to six weeks. If the total amount due is not paid, a public sale is conducted by the county sheriff or another officer of the law on the courthouse steps. Banks and other lenders usually bid up to the amount of the owed debt at the sale. Unless there is significant equity in the property, the only bidder at the sale will be a representative of the lender. If no other buyers bid, then the lender receives title to the immovable property in return. If the proceeds of the sale still do not cover the amount owed, then in some states the lender may issue a deficiency judgment against the borrower and all others that guaranteed this loan. This entire process can take sometimes as little as three months and as long as twelve months, depending on the volume of court cases.
What is non-judicial foreclosure?
Commonly called "power of sale", this allows a lender to foreclose without a lawsuit, which is permitted by most states. Instead of a mortgage, the grantor ("borrower") gives a "deed of trust" to the trustee to hold for the lender ("beneficiary"). When the grantor defaults, the lender files a notice of default and a notice of sale, published in the newspaper. This process takes only 90 days.
What is strict foreclosure?
Not a common procedure, a strict foreclosure does not require a sale. Once the proceeding has begun, the borrower has only a certain amount of time to pay what is owed. After this time, the title reverts to the lender. Strict foreclosure has been seen in many Oregon and California cases, usually taking place regarding land contracts.
What is “reinstating the loan”?
This is when a borrower can "cure" the loan before the date of sale. Many states permit this. This requires the borrower to pay the amount in arrears, plus attorney’s fees and interest. This is a better proposition for the borrower, since the amount in arrears is usually much less than the entire principle balance, which occurs when the lender accelerates the debt. Most states have laws requiring a reasonable notice to the borrower before the acceleration takes place.
What are redemption rights?
These is when the borrower has the right to "redeem" what is owed and get title to their property after the sale. This is not available in all states and the length of this period varies. When the redemption period is long, investors purchase the junior liens on the property so that they may have the right to redeem the property from foreclosure. Whoever holds the most junior lien has the last right to redeem the property by paying the underlying liens. The highest right is reserved for the owner. By obtaining a quitclaim deed for the owner, you have the right to redeem the property yourself.
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Very informative! It helped me a lot, thanks for sharing! It answers all a lot about foreclosures..
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