Understanding the Foreclosure Process

The word foreclosure is a term which has often been on the minds of many homeowners in America recently. Many American Mothers and Fathers work hard to be able to afford a home in which their families can safely dwell. Most of these families do not have the money on hand to pay for these homes up front so as a result they will often seek a loan from a bank or a mortgage company to buy this home.

In order to make the loan, the financial institution must be certain that the homeowner will be able to make the payments so that they will be able to get their money back. They require what is known as collateral, an asset, which they can seize in lieu of payments if the loan goes into default. The term default simply means that the homeowner is no longer making payments on the home as agreed.

Oftentimes the home being purchased with the loan is put up as collateral and if the person seeking the loan does not pay back the loan to the Bank, the house goes into foreclosure. The Bank may obtain a court order to proceed with the foreclosure and take back or seize the house in lieu of the repayment of the loan.

In most cases the lending institution may undertake to foreclosure upon the home or other property but in the event that the homeowner is able to repay the loan, a court of equity may rule in favor of the borrower and allow them to keep the home instead.

The instrument, which is used to form a contract between the lending company and the homeowner, is called a mortgage or deed of trust. When a contract has been effectively entered into between the homeowner and the lender the bank has simply agreed to give the borrower a certain amount of money in which to purchase the property. The borrower signs a promissory note, which is his agreement to the bank that he will pay the money back. The contract will also specify that a lien will be placed on the property meaning that the Bank will have the right to repossess the property if the loan is not repaid in the time specified in the contract.

The process of Judicial Foreclosure is available in all of the American States. When the borrower defaults on the loan, the property is sold with the proceeds from the resulting sale going to repay the balance on the existing loan. Any left over funds will be used to satisfy any other lien holders, and lastly any money after that goes directly to the borrower. This whole process is handled legally through the court system.

Anytime that Real Estate, homes, farms, land, or any other type of immovable property has been obtained through a mortgage, the process of foreclosure can be used.
In many cases Foreclosure by power of sale is sometimes added as a clause in the security interest, which defines the foreclosure process without court interference. This process follows the same order as the Judicial Foreclosure however it is usually much faster since the courts do not have to get involved in the process.