What is a foreclosure? February 26
When a home owner fails to comply with and make the monthly payments on a mortgage, the bank can sell or repossess the real property to recover it’s debt. This is known as a foreclosure. A foreclosure is a very serious situation and should be taken very seriously. A foreclosure has very serious effect on the owner’s Credit Report. In most cases it will be very difficult for the owner to secure another loan if any of the owner’s properties were foreclosed.
There are two types of foreclosures in the United States
- Judicial Foreclosure
In this type of foreclosure a sheriff or an officer of the court auctions off the property on which the debtor has defaulted. - Statutory or Non-Judicial Foreclosure
In a statutory foreclosure the lender or more specifically the lender’s attorney instead of a sheriff auctions the property.
After the auction if the debtor has positive equity, that is the loan amount is lesser than actual value of the property, then the equity is protected. If the property has negative equity, that is the loan amount is more than the actual value of the property, then a deficiency judgment can be pursued in which lender can file a lawsuit against the debtor/owner for the remaining balance.
In most cases lending banks are usually present at the auction and typically bid no more than the actual amount owed on the property. If no other buyer steps forward then the lending bank receives the title to the property. Seeing this trend of banks not bidding more than the loan amount many individuals and companies bid on the property a bit more than the banks and gaining access to the equity.
So if a owner feels that he/she cannot keep up with the monthly payment, the owner should immediately contact the mortgage company/bank and discuss about it before the bank starts the foreclosure proceedings. On the other hand if the owner ignores the foreclosure warnings and does not take legal action to stop the foreclosure (such as filing bankruptcy, or paying off the due and becoming current), the bank will proceed and auction the property and sell it. During this period the owner may/will be asked to evacuate the house and can no longer live in it.
Again a foreclosure is a very serious situation and should be avoided at all costs. At any given time there are approximately 50,000 homes in foreclosure all around the country.