Definition of Foreclosure of Property
- In order for the borrower to obtain title to a property by way of a mortgage loan, the lending institution uses the property as collateral to assure repayment of the loan. In the event of a default, the lending institution has a right to collect the debt by revoking the mortgage and reclaiming the property. The property is then sold at a foreclosure sale.
- A property owner can default on a loan by failing to make a monthly mortgage payment on time. The property owner has breached his contract with the lending institution, and therefore the lending company may contact the property owner in an attempt to resolve the matter.
- Most mortgage contracts allow the borrower a grace period to pay the monthly mortgage and any additional late fees. The lender sends a demand for payment letter informing the property owner of her default on the mortgage. The demand for payment letter is usually sent certified mail. After the grace period, if the borrower continues to remain in default of the terms of the mortgage, the lender may initiate foreclosure proceedings.
- The foreclosure proceedings vary from state to state. In some states, the lender may institute a judicial foreclosure and obtain a court order. After obtaining a court order, the lending institution has a right to sell the property. Alternatively, the lender may initiate a nonjudicial foreclosure and allow a trustee to foreclose and sell the property. To initiate a nonjudicial foreclosure, the lender follows the procedures according to the terms of the mortgage contract.
- There is a certain time frame during which the property owner can redeem her rights to the property before the lender sells it. The time frame varies from state to state. After the required time frame has elapsed, the borrower is given notice of the foreclosure sale. Thereafter, the property is sold at a foreclosure sale.