Real Estate Investing Information Blog

Foreclosure is the lawful proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property (immovable property) due to the owner's not a success to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". Commonly, the violation of the mortgage is a default in fee of a promissory note, safe by a lien on the property. When the process is complete, it is normally said that "the lender has foreclosed its mortgage or lien".

In the United States, there are two sorts of foreclosure in most general law states. Using a "deed in lieu of foreclosure," the bank claims the title and possession of the property back in full pleasure of a debt, generally on contract. In the arranged simply known as foreclosure (or, possibly, distinguished as "judicial foreclosure"), the property is exposed to auction by the county sheriff or some other officer of the court. Many states require this latter type of proceeding in some or all cases of foreclosure, in order to secure any equity the debtor may have in the property, in case the value of the debt being foreclosed on is substantially less than the market value of the immovable property (this also discourages strategic foreclosure). In this foreclosure, the sheriff then issues a deed to the winning bidder at public sale. Banks and other institutional lenders usually bid in the amount of the owed debt at the sale, and if no other buyers step forward the lender receives title to the immovable property in return.

Other states have adopted non-judicial foreclosure procedures, in which the mortgagee, or more frequently the mortgagee's attorney or designated agent, gives the debtor a notice of default and the mortgagee's intent to sell the immovable property in a form approved by state statute. This type of foreclosure is normally referred to as "statutory" or "non-judicial" foreclosure, as opposed to "judicial". With this "power-of-sale" type of foreclosure, if the debtor fails to cure the default, or use other official means (such as file for bankruptcy which provides a temporary automatic stay to the foreclosure proceeding) to stop the sale, the mortgagee or its representative will conduct a public auction in a related manner as the sheriff's auction described above. The highest bidder at the auction becomes the owner of the immovable property free and clear of any notice of the former owner but the property may be encumbered by any liens advanced to the mortgage being foreclosed (e.g. a senior mortgage, unpaid property taxes etc). Further legal action, such as an eviction may be essential to obtain possession of the premises.