Foreclosure
Foreclosure is a legal proceeding in which a lender extinguishes a borrower’s rights to a mortgaged property and sells or repossesses it after the borrower has failed to live up to the obligations agreed to in the loan contract or mortgage. Most foreclosures occur when the borrower, also called the mortgagor, fails to make mortgage payments to the lender, or mortgagee. The lender may then declare the entire debt due and owing and may seek to satisfy it by foreclosing. In a foreclosure, the property is usually sold to the highest bidder in a court-decreed sale. Often the highest bidder in the sale is the lender.
Statutory Redemption or Statutory Right of Redemption
There is a period of time when the borrower or mortgagor has a right to regain ownership of the property after foreclosure. This is granted by legislation in many states. The mortgagor has a period of one year in most cases, to pay the amount that the property was sold for at the foreclosure sale. If the price is paid within the statutory redemption period, the mortgagor will be allowed to keep the property.
If the state where the mortgagor lives offers statutory redemption, the mortgagor may stay on the premises after foreclosure. Once that statutory redemption period is finished, if the mortgagor has not redeemed the property, the purchaser at the foreclosure sale will receive title to and possession of, the property.
In the states with such statutes, where mortgagors may redeem property after a mortgage foreclosure, the states have allowed statutory redemption in order to drive up foreclosure sale prices; this benefits both the defaulting mortgagor and his creditors who have obtained an interest in the property. The mortgagor is given an opportunity to match the sale price. This often has the effect of causing potential buyers of the foreclosed property to adjust their bids.
In a state without such a statute, such as Texas, this statutory right of redemption does not exist, and this means that all foreclosure sales are final, unless the courts overturn it on procedure.
Equitable redemption
Equitable redemption means that the defaulting mortgagor can reclaim property by paying all past due mortgage payments any time prior to foreclosure. This is a common law concept, existing as law in the form of judicial opinions. It differs from statutory redemption in that statutory redemption begins at the point of foreclosure and the defaulting mortgagor must pay the full foreclosure sale price. All state courts have recognized a mortgagor’s right to equitable redemption.
Strict foreclosure
In a strict foreclosure proceeding, the mortgagee or lender has the right to possess the mortgaged property directly upon default on the mortgage agreement. This type of foreclosure is rarely used in contemporary markets.
Judicial versus Non-Judicial Foreclosure
In a judicial foreclosure proceeding, the mortgage lacks the “power of sale” clause, so the foreclosure must be processed through the state's courts. The court may confirm that the debt is in default, and an auction is held for the sale of the property to acquire funds to repay the lender. This is to protect equity the debtor may have in the property. This type of foreclosure differs from non-judicial foreclosures, which are processed without court intervention.
Forbearance or Mortgage Modification
When a creditor tries to make adjustments to the repayment schedule to allow the homeowner to retain ownership, this is known as a special forbearance or mortgage modification.
Equity of Redemption
Under equity of redemption laws, if a person can raise enough money before the loan is foreclosed, he may reclaim the property by paying the principal, interest and legal expenses. Depending on state law, he may be able to reclaim the property after foreclosure. This gives a borrower a final opportunity to keep the property. The equity of redemption exists from the time of default to the time that foreclosure proceedings are commenced.
Know the Laws in Your State and Know Your Rights
For expert advice on how to avoid foreclosure, call (888) 603-2117. We know the laws of each state. We know the lenders and their policies. And we’re experienced. We’ll help your family avoid foreclosure and we won’t be happy until you have your house back.
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