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Tuesday 27 August 2013

Foreclosure: How It Works

By Mitchell Sussman


With the collapse of the real estate market, the word "foreclosure" has unfortunately become an often used word in the English language. This article will provide information about the types of foreclosures found in various states and how they work.

As we know it today, foreclosure is the process by which a homeowner will lose his or her home to their lender. Just like the repossession of a car or furniture when the borrower does not pay, foreclosure allows the real property lender to take back the property if the homeowner falls behind on his or her payments.

The lender can do this because as part of its agreement to loan money to the homeowner it was is given a voluntary lien by the homeowner which the bank can enforce should the borrower not pay as agreed.

The most often used form of foreclosure is known as a "non - judicial" foreclosure. This form of foreclosure is pursuant to the provisions of the power of sale clause contained in a mortgage or deed of trust. It has become the most popular type of foreclosure because unlike a "judicial" foreclosure no judicial proceeding is required. In California, virtually all foreclosures are of the "non - judicial" variety because it takes little time and money to take back the property.

As mentioned above, a "non - judicial" foreclosure process involves the sale of the property without court supervision. It is faster and cheaper than foreclosure by court order and unless stopped voluntarily by agreement, bankruptcy stay or court a ordered stay, can take less than six months.

A" non - judicial" foreclosure culminates in a trustee's sale. At the trustee's sale the real estate will be auctioned to the highest bidder. Should bids not be forthcoming the property will revert to the lender whose loan is in default. If there are bidders, the foreclosing bank can keep the proceeds pay off its loan and any legal costs. Amounts in excess of the lender's loan will be used to pay off junior or subordinate liens. Should there be a balance after the payment of all liens it will be paid over to the borrower.

"Judicial foreclosure," is available in every state and required by some. This involves a lawsuit in which the bank asks for a sale of the real property under the supervision of a court. As with other court actions, "due process" permits the borrower to answer the suit and raise legal defenses. Ultimately a decision is made by the court in favor of either the lender or borrower. Should the lender prevail, the property is sold with the proceeds going to satisfy the foreclosing lender; other lien holders; and, finally, if there are any proceeds left, the homeowner.

More information about foreclosure can be found at http://www.palmspringslitigationattorney.com




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