For many of us, home ownership is part of the American Dream. Unfortunately, owning a home comes with certain risks, especially in an uncertain economy. As a homeowner, if you are unable to fulfill your obligations to your lender, a foreclosure is probably in your future.
Judicial Foreclosure
As the name implies, this type of foreclosure procedure is done through the court system. If you default on a property, the lender files paperwork and provides public notice to all potential creditors and buyers. This paperwork essentially asks the court to allow the lender to sell your property due to your lack of payment. As a homeowner, you are served the court documents and then have the right to dispute the claim of default and prove that you have, in fact, made payments on the property. Once the court has determined that you are in default and the lender has the right to sell, the property is placed up for auction and the highest bidder is the new owner of the property. Often that highest bidder is the lender who then has the right to sell the property outright to another homeowner. Twenty-two states use judicial foreclosure procedures.
Non-Judicial Foreclosure
In this most common type of proceeding, your foreclosure is handled according to state laws rather than through the court system. In these proceedings, once you are in default on your property you are sent a letter by the lender which details the amount of time you have to pay the debt and get your account current. If you’re able to do that, the matter is resolved. If not, the lender will post a legally required Notice of Sale in the appropriate places and, after the time limit has expired, will sell the property to the highest bidder. The only way you can stop these proceedings is to file a lawsuit and prove that you should maintain ownership of the property.
Strict Foreclosure
Some mortgage agreements allow the lender to take possession of your property if you violate any conditions of the mortgage agreement before the debt is paid in full. If that happens, you will lose all equity in the property as well as any increase in market value. In most states, the lender has to prove in court that you have defaulted on the mortgage agreement. You will then be given a limited amount of time to comply with the terms and pay the debt. If you are unable to do that, ownership of the property is automatically transferred to the lender; no sale is required. Because this is a powerful tool that can easily be misused or abused, a Strict Foreclosure is the rarest of the three types of foreclosure.
The foreclosure rate in America appears to be on the decline, but thousands of people still face foreclosure every month all across the country. It is important for you to know the terms of your mortgage agreement as well as the rights your state grants you.
