Define Foreclose
Foreclose is a word that often makes people cringe. Mortgages are subject to foreclosure, both through judicial and non-judicial means.
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Definition
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Foreclose is an action that occurs when a mortgagor is behind on payment to the entity that is holding the mortgage of a specific property. Once a property has been foreclosed upon, the mortgagor cannot enter the property.
Judicial
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A foreclosure subjected to judicial sale is a property that is subject to sale with court supervision. Proceeds from such a sale are paid by priority to the mortgage holder, then to other lien holders. If there are any proceeds left after all liens are cleared, they are paid to the mortgagor.
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Non-Judicial
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A non-judicial foreclosure is sold according to power of sale. The foreclosed property is sold without court supervision by the mortgage-holding company or bank. This type of sale is often quicker, resulting in proceeds being paid to the mortgage holder, then to other lien holders, and then to the mortgagor.
After the Sale
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After a foreclosed property is sold, whether judicial or non-judicial, if the property did not retrieve the amount owed, the mortgagor can still be responsible for the shortage. Depending on the laws governing the state where the property is located, mortgagors can be held liable for remaining balances owed to the mortgage holder.
Option
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The mortgagor can offer a deed in lieu of foreclosure. This is where the mortgagor returns the property to the mortgage holder in exchange for the cancellation of the loan rather than going through a foreclosure. A statement in writing forgiving any deficiency will protect the mortgagor from a future seeking of judgment.
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