About Mortgage Foreclosure

Mortgage foreclosure is the technical term for the procedure by which a mortgage lender sells your home to pay off your late mortgage loan. When you received loan money to purchase your home, you signed two important documents, one of which was a promissory note; the other a mortgage or a deed of trust. The promissory note is typically a short document that lists the terms of the loan, including the length of the loan, the interest rates and the minimum monthly payments. The mortgage document, sometimes referred to as a deed of trust, gives your lender a security interest in your home. The mortgage or deed of trust provides that if you fail to make payments under the promissory note then the lender can sell your home to pay off the outstanding balance under the promissory note.

State-Specific Mortgage Foreclosure Procedures

Mortgage foreclosures are regulated by state statutes. Every state has its own foreclosure statutes, so the process can vary from state to state. Some general principles are common in all states, though.

General Foreclosure Procedure

Generally, the foreclosure process begins when the lender records a Notice of Default or something similar at the County Recorder's office. The Notice of Default will explain you are in default and will provide the amount needed to fully pay off the mortgage loan. After recording the Notice of Default, your lender will typically need to wait at least 90 days before taking further action. After the 90 day period, the lender can either take title to your home or sell your home at a public auction. In some states, the law provides a statutory redemption period after the auction. During the statutory redemption period, you still have the right to pay off the full balance on the mortgage and retain title to your home.

Mortgage Redemption

Most states have at least one, sometimes two, different redemption statutes. A redemption statute simply means you have the right to pay off the full amount of the loan and retain title to your home so your home does not get sold. Almost every state permits redemption up to the date of the sale of the home; typically, during that 90 day waiting period after the lender records the Notice of Default, you have the right to redeem the mortgage by paying the full amount due. Some states even permit redemption for up to one year after your home is sold.

Mortgage Deficiency Judgments

If your home is worth less than the total amount you on your mortgage loan, you might be liable for a deficiency judgment. Assume you have a mortgage loan with an outstanding balance of $200,000, but your home only sells for $180,000 at the auction. This leaves the lender with a $20,000 loss. In some states, the lender can file a lawsuit against you for the $20,000. This is called a deficiency judgment.

Mortgage Foreclosure Surplus

You may be fortunate to have a home worth more than the outstanding mortgage balance; in which case, you will probably get the surplus from the sale of your home. For example, if the outstanding balance on your loan is $100,000, but your home sells for $200,000 at the auction, you will probably receive the extra $100,000 surplus.

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