Understanding the Foreclosure Process

The foreclosure process is not something that is very difficult to understand. During the entire process, the property owner gets sufficient time to pay his installments and avoid the auction of his property.

Though, the bank or the loan lender has full authority to start the foreclosure process immediately after the property owner misses his installment payment for the first time, it is generally not done this way. The property owner is given some time to pay the installment that he failed to pay on time, generally with a fine or a late fee added to it. If the property owner misses his second payment too, then the banks or the loan lenders start giving him reminder calls or sending mails. If they are assured by the property owner, of a short time financial crisis that he is facing, then he might be allowed an extended grace period. But the banks will allow the loan to be current, only when both the installments are paid together, with a fine added to it. But failure to do so, results in starting the foreclosure process. There are three types of foreclosures that can be initiated by the lender; judicial foreclosure, power of sale and strict foreclosure. The process to be followed depends on the property laws of the state.

Judicial Foreclosure
This is the process followed in a maximum number of states, worldwide. The mortgage lender or the bank, files a suit in the court of law, against the property owner. The court then issues a notice to the property owner, to make the payment, within a certain duration of time. In general, the court allows 30 days of grace period to the property owner, to make his payment along with a fine added to the amount. If the property owner fails to do so, the mortgage lender or the bank can request the court to allow the property to be resold in a public auction. The property owner is then issued with a notice by the court, to vacate the property before a stipulated date. The auction is then carried out, generally by the sheriff's office.

Power of Sale
This process can be carried out by the mortgage lender or the bank, only if the 'power of sale' clause is mentioned in the loan papers. In this case, if the property owner fails to make his payments on time, then the lender issues him a notice. He is asked to make the payment within a certain duration of time or vacate the property. If he fails to make the payment, then the mortgage lender or the bank has the authority to put his property up for auction, generally through a public notice. In this type of foreclosure, the sheriff's office is not asked to take care of the auction procedure. This process is not allowed in many states and often, the entire process is subject to judicial review to analyze its legality.

Strict Foreclosure
Strict foreclosure process is carried out in cases, where the mortgage amount is far greater than the value of the property. The process is similar to that of the judicial foreclosure. The mortgage lender or the bank, files a suit against the property owner. He is asked to make the payment within a certain time duration. Its difference from the judicial foreclosure process, lies in the fact that the failure of the property owner to make the payment, automatically entitles the mortgage holder or the bank with the ownership of the property. This foreclosure process was allowed in very few states to start off with, and now, it is almost obsolete.

There might also be a situation, where the property owner has taken a loan from some other lender as well, by mortgaging the same property. In such a case, it is very important that the third party also be intimated about the foreclosure process, as the third party is also entitled to the money generated from the auction. If the revenue generated from the auction does not match the loan amount, then the loan lender may prompt the court to issue a 'difference judgment'. The ex-property owner (borrower) is then issued a notice by the court, to repay the difference between the value of the property and the loan.

In many cases, foreclosures occur because of the hesitation of the property owner in talking to the lender. In case of financial troubles, it is always advisable that the property owner intimates the lender about the same and the moneylender, in most cases, works out a plan for avoiding the foreclosure process. The process is beneficial fo, neither the property owner who loses his property, nor the moneylender who gets a lesser return than the amount he has given out in loan.