Foreclosures – What Are They?

A lender, which can be a bank or financial institute, claims possession of the property that belongs to the person who borrowed the money and used the property for collateral. This legal process is done because the borrower stopped making payments to the lender.


This form of foreclosure is available in all states and a requirement in some. It begins with the sale of the property that was mortgaged. The foreclosure is done under the court’s supervision with the proceeds going to satisfy the mortgage first. Next, if there are more lien holders then they get paid and if there is any proceeds left after all debts are paid then the borrower gets what is left. Under this type of foreclosure the lender is the one that initiates the foreclosure by filing a lawsuit against the one who borrowed the money. In any legal proceeding all of the parties involved must be notified but the requirements will vary from state to state. The short hearing is heard in local or state court and then the judge will then make their decision.


This form of foreclosure is referred to as foreclosure by power of sale. In many states, this is authorized by a power of sale clause that is included in the mortgage. The legal process involves the sale of the property by the lender without the supervision of the court. Doing it this way is cheaper and much faster. As with the judicial foreclosure the mortgage holder and other lien holders are paid first from the proceeds from the sale and what is left going to the borrower.


The other two types of foreclosure are considered minor because of their limited availability but under a strict foreclosure, the mortgage company files a suit. If successful, then the court will order the defaulted borrower to pay the mortgage within a certain period of time. If the borrower cannot do so then the lender receives ownership to the title of the property but does not have any obligation to sell the property. This type of foreclosure is available in a few states, like New Hampshire, Connecticut, and Vermont. This form of foreclosure is usually only available when the property value is less than what is owed.

When you are notified that your property is going to be put into foreclosure you will need to decide if it will help your financial problems to let it happen. If your financial problems are going to be temporary, like a sudden loss of your job you should talk to your lender and explain the situation. There may be a temporary solution to the problem and foreclosure can be held off for a certain period of time.