Foreclosure

When a lender forecloses on a home, it means mortgages have defaulted on and the property must be given up. The lender usually makes efforts to warn that  foreclosure is imminent, usually with certain deadlines. If the home is worth less than the amount remaining on the mortgage, the case may involve a deficiency judgment.

Types of Foreclosure

There are two main types of foreclosure initiated in the U.S., although a handful of states employs a few other methods. The two primary types are:

1. Foreclosure by judicial sale – This is the required method of foreclosure in many states; the property is sold under the court’s supervision, with proceeds paying off the mortgage lender and any lien holders.
2. Foreclosure by power of sale – Most states allow this type of foreclosure; it involves sale of the property by the mortgage holder, without supervision of the court.

Acceleration

The concept of acceleration is used to determine the amount owed under foreclosure. Acceleration allows the mortgage holder the right when the mortgagor defaults on the mortgage to declare the entire debt due and payable. Virtually all mortgages today have acceleration clauses. However, they are not imposed by statute, so if a mortgage does not have an acceleration clause, the mortgage holder has no choice but to either wait to foreclose until all of the payments come due or convince a court to divide up parts of the property and sell them in order to pay the installment that is due. Alternatively, the court may order the property sold subject to the mortgage, with the proceeds from the sale going to the payments owed the mortgage holder.

Avoiding Foreclosure

Lenders generally would rather not take on the responsibility of the house, preferring monthly payments on the loan. Therefore, many lenders are willing to modify the loan, temporarily lower or suspend monthly payments in a process called “forbearance,” come up with a repayment plan, or refinance. Other options include seeking government assistance, filing for bankruptcy, or simply selling the home yourself in order to avoid foreclosure and its stigma on your credit report.

Changes may occur in this area of law. The information provided is brought to you as a public service, and is intended to help you better understand the law in general. It is not intended to be legal advice regarding your particular problem or substitute for the advice of a lawyer.