About Foreclosure Law

Foreclosure is that terrifying word no homeowner ever wants to hear, let alone experience. However, it is the reality for some no matter how hard they try to avoid the situation. Everything from the loss of a job to health issues and family crisis are just some of the reasons why people fall into the foreclosure trap. If you find you're a homeowner going through this, it's important to understand the laws completely during the entire process. It may be necessary to consult a lawyer because the various laws and procedures can be quite confusing.

Identification

Foreclosure is the legal right of mortgage lenders or bank to collect property or be granted the right to sell property in order to pay off a defaulted loan. Time must be provided to the debtor in order to allow them the opportunity to pay off the debt. In the past, foreclosures were immediate. However, the laws have changed over the years to allow for more flexibility and rights to the homeowner.

Features

There are many laws in place regarding foreclosure that are in place to protect both the debtor and the mortgage lender. These laws are also in place to protect each from fraud issues, as well as unfair business practices. Each state has its own set of foreclosure laws and procedures. See the Resources below for a listing of foreclosure laws and procedures listed by state.

Types

There are two major types of foreclosures practiced in the United States. The most common type that occurs is foreclosure by sale. This type of foreclosure involves a court-appointed sale that is handled by both the court and the mortgage company. The proceeds pay off the mortgage company, other fees related to the sale and then the mortgagor. The second type of foreclosure is also a sale, but it is not held through court. Because this "power of sale" is not held through a court, these types of foreclosures tend to be quicker. Most all states allow this type of foreclosure and, like foreclosure by sale, funds are allocated in the same manner.

Considerations

If there isn't enough funds earned from the sale of the home to satisfy what is owed on the mortgage, this is referred to as a deficiency. In this case, the mortgage lender can take out another lawsuit against the homeowner in order to collect these funds. Homeowners are protected in some jurisdictions through use of the "fair value" legislation. This piece of legislation says that the value of the real estate is taken into consideration, rather than what is owed. In some cases, this calculation will reduce the amount owed by the homeowner.

Warning

Because laws change so frequently, it is important to fully understand what you are doing before taking any action. For example, there was a time when individuals would file for bankruptcy in order to have all of their debt discharged. This included mortgage foreclosures. However, with the changing of the laws, there are many new clauses found within bankruptcy and how they relate to foreclosures. Be sure to check with an attorney before doing anything drastic.

Resources

• Foreclosure Laws and Procedures by State