photo by Quint Cobb Foreclosure Relief, Flickr

Today’s economy has created a very high foreclosure rate.  It is said that one in four homes in much of the U.S. are either foreclosed against or are under foreclosure proceedings. Some areas such as California are experiencing even higher numbers of foreclosures.

Generally, one could say that there are two basic types of foreclosure—the mortgage foreclosure and the deed of trust foreclosure.  Both end basically in the same manner, namely the property owner loses his property, but legally the steps to foreclosure are slightly different.  Also be aware that different states have inserted special rules in their mortgage laws that could change or alter some of the following descriptions.
The Mortgage Foreclosure

The mortgage foreclosure begins by thereunder issuing a formal demand for payment, in the form of a “notice for default.”   A notice is sent through the mail, often by return-receipt-request, to the borrower and outlines how the borrower is in default.

Various reasons can be that the borrower has not paid for his home insurance that primarily carries the name of the lender in case of loss, or perhaps the borrower has been negligent in paying his taxes in a timely manner, or most commonly, the borrower has failed to make agreed upon payments to the lender.  Eventually this kind of foreclosure will result in a judiciary foreclosure whereby the judge allows the lender to reclaim the property, or foreclose.

Again generally, the borrower is given “X” amount of days to make up the deficiency. Usually this amount also includes late fees, interest, and even the cost of the lender to take the borrower to court.  Ordinarily when the mortgage and note were originally made these terms were spelled out for the borrower.  Thus it should not be a complete surprise for the borrower to be so treated.

A Deed Of Trust Foreclosure

In this instance, the borrower is referred to as the trustor, the lender becomes the beneficiary and an impartial third party who retains the title will be referred to as the representative of the lender or trustee.  In this illustration the title to the property was being held as security for the loan.  Again, as in the mortgage foreclosure, terms for this handling of the title, etc. has been agreed to when the loan was initiated.

Because there are no courts involved, property passes quickly from the trustee to either the beneficiary or even a buyer of the property.  Again, there are many similarities to either manner of foreclosure.  Both require notice, and both give the borrower a grace period to make the payments, etc.

Which manner your particular state uses is governed by foreclosure laws that with a little diligence you can learn about on the Internet. This may in turn help you avoid mortgage fraud or even help you avoid foreclosure should it come to that.  It has been noted however, that the best reaction you should have to financial problems that may lead to foreclosure is to get in touch with your lender as soon as possible.

photo by Current News Stories, Flickr

It is difficult to properly outline the foreclosure procedure for all states, as each state has its own diverse foreclosure laws. Be sure and carefully research the portions that interest you or you feel apply to you.

Keep in mind that the note is the proof and indication of the debt and a mortgage is recorded in the county where the property is located, which outlines how the mortgage will be paid and what happens if the borrower does not adhere to the repayment of the debt. In essence, foreclosure “happens” to the mortgage.
In general, when a homeowner is incapable to meet the payments of the loan on the property, the lender allows the borrower a designated grace interlude to make the payments good combined with additional fees and costs. However after a stipulated amount of missed payments, the lender is then forced to begin the foreclosure procedure.

Power Of Sale Foreclosure
A foreclosure process known as “power of sale” is not known or adhered to lawfully in every state, but it refers to a quick method of reclaiming the property that has been used as collateral for the loan.  After the proper notification has been given to the defaulting borrower, a deed of trust is provisionally passed to a trustee who will then sell the foreclosed home for the lender at an auction.  This type of foreclosure is subject to judicial analysis to make sure that it was wholly and properly accomplished.

Judicial Sale Method of Foreclosure
This is the most commonly used method used by the majority of lenders.  The lender who files suit against the defaulting borrower in the court system begins the judicial foreclosure process.  The borrower then receives a “notice of default” from the lender, which states that the immediate payment of all monies is now due and payable to the lender.

Generally the borrower needs to respond within 30 days to avoid or halt the foreclosure. Should the borrower make no restitution to the lender, then the lender can request the courts to give a decision in his favor, and a notice of sale is recorded with the county.  The sale is advertised in local newspapers, usually for a three-week length of time, which serves as public notice to not only investors, but the lender and borrower as well.

The property will then be sold at auction.  The opening bid is ordinarily set by the lender to cover the loan amount, loss of interest, attorney fees, and other incidental costs.  Should no bids be received, the attorney representing the lender purchases the foreclosed property for the lender.

Strict Foreclosure
Rarely used in these times, this type of process is used when the property is worth much more than is owed to the lender.  The fact that there is high equity in the property must be proven in the courts to use this particular method.  Either way there is a still a transfer of the property to the lender, however occasionally when there are substantial amounts of monies resulting from the auction, and all taxes and costs have been paid, then the borrower will receive the difference.  As you can imagine this rarely happens in these times.