What is a foreclosure?
What is a Foreclosure? A foreclosure is a process done by legal means whereby a lender obtains ownership of a home which was used as collateral on a loan (mortgage). The lien holder (mortgage lender /mortgagee) acquires an end of a mortgage borrower (mortgagor)’s equitable right of redemption. By following a specific statutory procedure a court order or a process of the law is used to accomplish the foreclosure. Many people use the term foreclosure to represent a home for sale but technically speaking once the foreclosure process is over the home is called Real Estate Owned (REO) or a Bank-Owned property. If you want to buy a real a foreclosure then you have to attend the court hearing where the foreclosure is sold to the highest bidder; many times no one will buy the foreclosure at the auction and the bank will get it.
If a borrower defaults on the loan they can still get the equitable right of redemption if they pay off the debt. By foreclosing on the home creates an “immediate” termination of the equitable right of redemption. The equitable right of redemption can cause problems with the title which affects the property value, marketability of the property and may keep the lender from being able to repossess the property ever. Through a foreclosure the lender will have the legal and equitable title to the property in fee simple. Not only can lenders initiate a foreclosure but also any lien holders that are owed money, such as: credit cards companies, government tax agencies, homeowners’ associations contractors, etc.
After the foreclosure the lender will try and sell the property to pay off the mortgage and legal costs. Some promissory notes have a recourse clause which allows the lender to file a deficiency judgement. When dealing with short sales, deed-in lieu or foreclosures it is important to seek legal advice to insure all of the details are revealed and taken care of.