Each state delegates unique laws governing the process of foreclosing a previously owned property. Foreclosure procedures vary from state to state. The lender initiates foreclosure procedures when the borrower defaults on a secured loan, such as a home mortgage. Foreclosure procedures allow the lender to take the secured property into their possession, if the borrower defaulted on the loan.

Outlined In the Initial Contract

The contract will almost always delegate the foreclosure procedures. Lenders most often use a “deed in lieu of foreclosure’ in the event of default on the original loan to obtain the property from the borrower. Numerous portions of the contract define the details of this foreclosure procedure. The contract defines how many payments may be missed by the borrower before the lender becomes legally able to file for foreclosure procedures. The buyer always retains the option to contact their lenders in the event of difficult financial times and request a renegotiation of payment terms. A renegotiation of payment terms takes place through a new contract, which both the lender and the borrower must sign to invalidate the old contract.

Some states require foreclosure procedures to take place at the local sheriff’s discretion. This option protects the lender from losses in the process of reselling the home to cover the debt owed by the original borrower. The house may have depreciated over the years since the mortgage was originally contracted and the lender will be at risk of losing lots of money, if this foreclosure procedure isn’t engaged. There exist judicial and non-judicial foreclosures for use in the initial contract. The judicial foreclosure requires both parties to appear in court and follow through with a hearing. The non-judicial foreclosure means the bank may take possession of the property without having to appear in court first. Some creditors retain the option of weighing the home’s value against unsecured debt in the same manner secured debt becomes distributed. The government reserves the right to claim any unpaid taxes in arrears on the home. Both the lender and the prospective homeowner need to dismiss any liens against the home before selling or purchasing the home. The lender will want to extinguish all liens before selling the home to know what price to ask from the buyer in order to come out even or with some profit. The buyer of the home will want to investigate any pending liens before purchasing the home to avoid unnecessary costs in the future.

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