Foreclosure Procedure

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A foreclosure procedure is done when the borrower fails to comply with mortgage. A borrower defaults when the deed of trust is violated in payment of debt. In the case of the violation of the mortgage, the lender can foreclose its mortgage in two ways – Judicial sale or power of sale.

Under a judicial sale foreclosure procedure, the repossession of the real property is conducted under the supervision and authority of the court. First, when the debtor defaults, the lender must apply to the court so that he can get the permission of the court to sell the property. If he gets the permission, a lawsuit against the borrower will be undertaken and the property in question will be exposed to auction, that's too under the authority of the court. An officer of the court designated for the purpose will issue a deed to the winning bidder at auction confirming that the property is sold. Usually the lenders bid in the amount of the owed debt at the auction. The court, then, confirms the sale procedure and hears any case, if any, coming against.

Power of sale is a non – judicial foreclosure procedure type in which there is virtually no court involvement in its procedure. The lender is authorized power to sell the property kept as security, which has been agreed between the two parties in the deed in live of foreclosure. The foreclosure procedure starts when the mortgage sends a notice of default to the debtor and his intention to sell the property at a public auction. At this stage, the borrower can cure the default or use other lawful means like filling for bankruptcy, to stop the sale. If he fails, the lender will conduct a public auction at which the highest bidder will become the owner of the immovable property. The new owner will not bear any interest burden of the former owner. He, however, must clear any liens superior to the mortgage being foreclosed like unpaid property taxes. After the property has been sold, involvement of court may arise compulsory. In such cases, the lender will seek a deficiency judgment from the court against the borrower. For instance, an eviction may be ordered to obtain possession of the property so that clashes between the parties may be avoided.

In cases, it may be necessary for the new owner to petition a court for issuing a decree to cut off any junior lien holder's rights to redeem the senior debt. If he fails to turn up within a time frame, his right is cancelled and the new owner's title is fixed. In either type of foreclosure procedure, the purpose is to protect the rights of all the parties.