What is foreclosure?
When a bank, a builder or any other lending agency finance the purchase of a property the borrower has to repay the borrowed money in fixed installments and intervals as agreed between them. The lender gives the money after obtaining the property as security. His right is made the first lien upon the property. When the borrower, also known as the mortgagor fails in payment the lender or mortgagee has the right to dispose of the property, but only with a court order. Such a proceeding is called a foreclosure.
The owner of a house becomes a defaulter for several reasons. Unmanageable debts of the owner which he or she cannot handle may be one reason. Another is the loss of job of the borrower. Once the home owner loses his job he may not have sufficient funds to pay the dues. If the location of job is shifted to a far away place the mortgagor may not want to keep his present place of residence.
As said earlier foreclosure proceedings require a court order in favor of the mortgagee. But the mortgagor has an equitable right to stop foreclosure home proceedings even after the court proceedings start. It is called the right to redemption. That is, if the mortgagor is prepared to pay all the dues, interests on defaulted payment and the cost of the court proceedings, he can keep the property as long as he pays the future dues in time. It is the termination of such equity rights of redemption by the court is called foreclosure. A term to that effect is written into the agreement.
In the United State one method of foreclosure is by judicial foreclosure. It is the sale of the property under the supervision of the court. In this the proceeds of the sale first pays up the dues to the mortgage holder including the legal costs incurred by him. If there is anything left the others who hold a lien upon the property have to divide it among them. If the proceeds are not sufficient to pay up the mortgage then the mortgagee has to approach the court to obtain deficiency judgment to recover the balance from the mortgagor. But such a clause is to be added to the agreement.
Another type of foreclosure is foreclosure by power of sale. Again, this right has to be written into the mortgage deed. This empowers the mortgagee to sell the property in case of failure to pay by the mortgagor. No court supervision is required in this case. But the usual procedures of moving the court and obtaining orders are required.
The laws on foreclosure throughout the United States are not the same. The first one stated above is the same all over the country. The second one is prevalent in most states, but not all. Another law in a few states is known as the law of strict foreclosure in which the lender becomes the owner of the property in case of default in payment. So I hope you will at least understand what is foreclosure.
