Foreclosure

Foreclosure Definition

A foreclosure is the process of repossession of real property by a lien holder (a lender or local government) when a borrower fails to meet the conditions of a mortgage loan or when a taxpayer fails to pay property taxes.

Explanation

Mortgage Foreclosure

The lender has the right under Article 9 of the Uniform Commercial Code to take possession of mortgaged property in a foreclosure auction when the lender holds a valid finance contract.

The type and detail of the foreclosure process varies according to state law.

There are three main categories of mortgage foreclosure of real property.

The judicial foreclosure requires the lender to come before the court for a judgment. Almost half of the states require judicial foreclosures.

The non-judicial foreclosure doesn’t involve a court action or require judicial approval.

A non-judicial foreclosure, however, requires a power-of-sale clause in the deed of trust or mortgage contract that allows this type of foreclosure.

In a power-of-sale, the lenders can legally take possession of the property without going through a court proceeding.

A strict foreclosure allows the lender to go to court for a default judgment on the mortgage.

The lender then asks the court to allow an immediate foreclosure on the property.

The court permits this action when the mortgage debt is greater than the property value. Only a few states allow strict foreclosures.

A homeowner can also voluntarily surrender ownership to the lender under a deed in lieu of foreclosure action.

A deed in lieu of foreclosure is an absolute conveyance, meaning the borrower turns over all rights, titles and interest in the property to a lender.

Tax Foreclosure

A tax foreclosure is a lawsuit brought on behalf of a local taxing agency when the property owner is delinquent in paying taxes assessed on a parcel. This is also known as an “ad valorem” tax.

Similar to mortgage foreclosure, a local government, court-approved foreclosed property auction is held by the county. This auction is often called “sheriff sale”.