What is a Foreclosure

Foreclosure can be referred to as a legal process which allows the mortgage lender to foreclose the assets kept with him by the borrower for a mortgage loan. This legal process is taken up by the lender, when the borrower fails to pay the security interest on a regular basis as agreed with the lender. The courts of equity, also grants permission for the borrower to repossess the property pledged to get the loan from the lender, on payment of the full amount of the loan. It is through the process of foreclosure that the mortgage lender gains complete control of the property.

This process of foreclosure is normally applied to mortgage loans issued for residences, and foreclosure is taken up when the borrower fails to make the payment of the promissory notes as agreed. The foreclosure is enforced by the Mortgage lender to the mortgage borrower on various parameters and situations. The different types of foreclosures are as under: –

Judicial Sale Foreclosure
In this form of foreclosure, the mortgage lender goes for the sale of the mortgage pledged by the borrower, under the supervision of the judicial court. The money generated by the sale of mortgage is firstly used to pay the loan amount to the mortgage lender, and then it is paid to the other lien holders and other parties. In this process, the actions taken up by the mortgage lender should be notified to all the parties. The permission in the form of foreclosure is offered after a small hearing at the judicial court. However, the notification process for the judicial sale foreclosure varies from one state to another.

Non Judicial Foreclosure
This process of foreclosure is executed under the ‘Power of Sale’ clause which is mentioned the ‘Deed of Trust’. The power of sale clause agreed upon by the mortgage lender and the mortgage borrower allows the lender to sell the mortgage in case of nonpayment of mortgage loan amount by the borrower. This foreclosure is known as a non judicial foreclosure as the foreclosure does not need any court permission. This process is cheaper and faster than the judicial sale foreclosure.

Strict Foreclosure
This form of foreclosure is normally taken up when the value of the mortgage is less in value when compared to the loan amount. In this form of foreclosure, if the defaulter proves trust worthy in front of the court, the court would allow the borrower to pay the loan within a specific period of time. In case the borrower fails to make the payment within specified period of time then ownership of the property automatically transfers to the lender. In this method, the lender holds no compulsion to sell the property.