Foreclosure - What It Really Means

    Foreclosure is a scary word to those who are uninformed and it can be equally intimidating to those who are going through it. It is sometimes the only option available to homeowners who simply cannot afford their home. It is a legal proceeding in which the bank or other creditor sells or repossesses a piece of immovable property, also known as real property, due to the owner's failure to comply with an agreement between the lender and borrower. This agreement is called a mortgage or deed of trust. When the process of foreclosure has reached full completion it is typically said that the lender has foreclosed its mortgage or lien. This is often the last resort in attempts by the lender to collect payment.

    In most of the states in the United States of America there are two types of foreclosure. Using what is called a deed in lieu of foreclosure, the bank claims the title and possession of the property in order to fully satisfy the debt. This is usually done as a part of the contract that has been drawn up. Judicial foreclosure is the most common type that is being referred to when the term foreclosure is used. In this situation, the property is turned over to auction by the county sheriff or some other officer of the court. Many states require this type of proceeding in some or all cases of foreclosure so as to protect any equity the debtor may have in the property just in case the value of the debt that is being foreclosed on in substantially less than the market value of the real property. In this type of situation, the sheriff issues a deed to the winning bidder at the auction. Banks and other lenders typically bid in the amount of the owed debt at the sale and if no buyers come forward , the lender receives the title to the property in return.

    Some other states have adopted non-judicial foreclosure procedures in which the mortgagee's attorney gives the debtor a notice of default and the mortgagee's intent to sell the property in a form spelled out by state statute. If the debtor does not take any action in order to clear up the debt such as filing for bankruptcy, which provides a temporary automatic halt to the foreclosure proceeding, the mortgagee will conduct a public auction similar to the sheriff's auction. The highest bidder at the auction becomes the owner of the property free and clear of any interest that was accrued by the former owner. At times further legal action such as eviction may be necessary to obtain possession of the premises.

    Certain companies as well as individuals are engaged in the business of purchasing properties at foreclosure sales. This can be a risky situation for the uninformed to engage in due to the fact that foreclosure involves a moderate to great amount of paperwork and the proper forms must be filled out and completed in order to solidify the deal. Foreclosure remains a permanent blemish on credit reports so if at all possible it should be prevented by consulting an attorney or a foreclosure prevention specialist.