Emilio Francisco & Associates, LLP - Attorney At Law

Foreclosure

Foreclosure is the legal process in which a lender, or other lien holder, obtains a court-ordered termination of a mortgagor’s equitable right to redeem his property upon full payment of the outstanding balance. Normally, a mortgagee acquires a security interest from a debtor who guarantees an asset to secure the loan.

If the debtor’s loan defaults and the lender attempts to repossess the property, courts of equity can grant the right of redemption to the borrower, provided that the existing debt will be paid in full along with the penalties.

Creditors often opt to foreclose the right of redemption as well, as it denies them the assurance that they can repossess the property successfully. This can also be done for overdue taxes, HOA assessments, or outstanding contractors’ bills.

Foreclosure applied to a residential loan entails the repossession of an immovable property by a secured lender after the borrower fails to follow through with their agreement, known as a “mortgage” or “deed of trust”.

Upon successful completion of the process, the lender can then put the property on sale and use the profit for legal fees and its mortgage. This is often due to a breach in the mortgage such as a default in payment of a promissory note that has been secured by a lien.

However, if the promissory note includes a recourse clause and profit from the property sale is inadequate to pay off the outstanding principal and fees, the borrower may file a claim for a deficiency judgment.

Due to current economic conditions, banks and lenders are now more receptive to assisting consumers and avoiding foreclosing on homes as much as possible. There are several financial resolutions you may avail of if you are at risk of a foreclosure.

Types of Foreclosure

While there are several types currently available, foreclosure by judicial sale and by power of sale are more widely-used.

Judicial Foreclosure is accessible in all states and mandatory in many. Under court supervision, this type of foreclosure entails the sale of a property with profit distribution priority as follows: mortgage first, then other lien holders, and, ultimately, the borrower should there be any left. While notification requirements differ from state to state, being a legal action, judicial foreclosure calls for a notification of all parties involved. Most instances involve an announcement of a judicial decision after a short hearing in a local or state court but in rare cases, they may be filed in federal courts.

If a Deed of Trust was used in lieu of a mortgage or if a specific clause is included in the mortgage, foreclosure by power of sale may be executed. The main difference of this type with judicial foreclosure is that the property sale can take place without supervision of the court. However, first claimants to sale profits are still the lender and lien holders.

Due to their limited accessibility, other foreclosure types are considered minor. Strict foreclosure is available in a few states such as Connecticut, New Hampshire, and Vermont. This requires the borrower to pay off the mortgage within a certain period and failure to do so ends up with the lender gaining the title of the property without obligation to put it up for sale. Generally, this is only available when the property’s worth is “under water” or less than the debt.

Debt negotiation or Chapter 13 bankruptcy may be a viable solution to help homeowners avoid foreclosure. Consult with our specialists today and find out if you qualify for these services.