Understanding Foreclosure Process

Foreclosure is the process whereby the lenders repossess a home while the homeowner fails to make mortgage payments regularly. The value of the property is used as a guarantee against non- payment of the debt and hence the home owner is forced to sell the property at a rate which is less than the market value.

The home owner is the loser as he does not get the full market value, the primary reason being that the property has been subjected to foreclosure and the buyer is aware of it and is not inclined to offer as much, if it is otherwise. Another reason is that the property is priced for a quick sale.

Foreclosures are of many kinds. One of them is judicial foreclosure that requires a court supervised sale of the mortgage property and allows the borrower a one year “right of redemption”. During this period, the borrower is allowed to buy the property back from the bidder. Foreclosure by power of sale involves the sale of the mortgaged property without the supervision of the court but this need to be specified in the power of sale clause in the mortgage agreement. In a Strict foreclosure, the property remains unsold but the borrower has to pay the debt within a specified period which is ordered by the court.

But the easiest form of foreclosure is a trustee's sale wherein the borrower offers the power of selling the property to a trustee when the borrower defaults on the mortgage. This is a quick and economical way of foreclosing. In the process of foreclosure, however, a period of time is given between non payment and the actual foreclosure process, which is known as pre foreclosure. This period is the vulnerable time for the owner as the bank could possibly accept offers from third parties as well.

A foreclosure is a legal action and all parties involved must be notified in this process. The profits from the sale of property should be used to pay the outstanding taxes, if any, and then the outstanding mortgage and legal costs of the lender. The borrower finally gets the remaining proceeds, if any money is left after all the debts are satisfied.

The reasons for foreclosure are many but the main reason is loss of employment and health care emergency in the family. Foreclosure is a strange process which gives profit for one person when the other person stands to lose. But for real estate business people and others, it is an excellent opportunity who can grab it at a drop down price.

So, whether a person is under the scanner for foreclosure or in the limelight for buying a mortgaged property and wishes to buy a foreclosed property, it is essential to know and understand the foreclosure process.

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