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Understanding The Different Laws On Foreclosure

Updated on March 17, 2016

Foreclosure laws can be somewhat difficult to understand no matter where you are, but, if you are a homeowner or you’re thinking about becoming one, it’s important to know what foreclosure proceedings can bring. There are really two different kinds of foreclosure options that lenders can pursue: judicial foreclosure and power of sale foreclosure. Both of these options are made available to lenders under certain circumstances. Oftentimes the definition of foreclosure is agreed upon in the mortgage documents, and lenders are frequently allowed to pursue foreclosure after one or more payments has been delinquent for at least 30 days.

To understand mortgage law, mortgages themselves have to be explained. When a lender doles out a mortgage, they must do so either with a mortgage or a trust deed to place a lien on the property. Most lenders opt for the trust deed, because it grants them more flexibility with the terms of the mortgage and the potential for foreclosure. In either event, the lien on your property means that the lender will be able to foreclose on you if you default on your loan.

Judicial Foreclosure

If a lender uses a mortgage to help generate the mortgage loan, then their only option for foreclosure is to go through proper judicial channels. A judicial foreclosure requires that the lender file a lawsuit in a state court where the property is located. If the lawsuit goes through, the lender will receive an order from the judge stating that they can now foreclose on the property. The judge will also contact the local sheriff’s office to ask for a local sheriff’s sale of the home.

Power of Sale

With this foreclosure option, lenders do not need to file a lawsuit to foreclose on a property. Instead, they can go to a trustee (a third party—usually a title company, bank, or attorney) who uses the power of sale to foreclose on the property. There are specific and detailed laws about how these foreclosure proceedings must go. The borrower must receive 90 days’ notice from the trustee that they are being foreclosed upon. The borrower must also be given an adequate amount of time to pay back the mortgage or at least ensure that it is current. This is usually a time period of about four months, but every lender and trustee is different. In some instances, foreclosure proceedings can last over a year.

If the borrower does not come up with the money in the allotted amount of time, then the trustee can proceed with auctioning off the property in order to help the lender earn their money. Of course, if you’re being foreclosed on, then it’s important to understand your own rights. You can ask for a payoff statement from the lender, and they will be forced to provide you with one. A payoff statement essentially lets you know how much you have remaining to pay on your balance. You must also be granted a 90-day negotiation period at which time you will be able to talk with lender about modifying the loan agreement. In any event, foreclosure is never a fun experience, but it is something that you should be prepared for.


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