About the Lien Foreclosure Process
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Mortgage Basics
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To understand the lien foreclosure process, you should first become familiar with mortgages and how they work. When someone purchases real estate, unless he buys it with cash, he gets a loan and signs a mortgage document, which then creates a lien on the property. Per the terms of the mortgage document, the lien will remain on the property until the loan balance goes to zero or there is a foreclosure for non-payment. Once the loan is closed and the mortgage paperwork signed, the lien (which pledges the property as security for the debt) is recorded and becomes part of the title to the property.
Conditions Permitting Lien Foreclosure Actions
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A mortgage lien is typically recorded for a specific amount of money. For example, if you buy a home for $275,000 with $75,000 cash and a mortgage of $200,000, your mortgage lien would be recorded for $200,000. The mortgage note will contain the legal language that specifies the payment frequency (usually monthly), the interest rate, the duration of the loan (typically 15 or 30 years), and the projected maturity date. If the borrower violates the terms of the mortgage loan, the lender (also the owner of the lien) can initiate a foreclosure action to recover the security (the real estate) in order to recapture the outstanding balance and the accrued interest due on the mortgage loan.
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The Lien Foreclosure Process
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The lien holder will attempt to collect monies due him after non-payment via telephone and mail. Should the borrower be unable or unwilling to pay the monies due to bring the mortgage loan current, the lender notifies the borrower that she is in default. After this notification, the lienholder can advise the property owner that he will initiate foreclosure proceedings to recover his funds by taking ownership of (or scheduling an auction of) the real property secured by the lien. Once the process begins, the procedure must follow individual state guidelines, but the result will be the same. For example, in most areas, your lender will not even accept a partial payment of the amount in arrears; he will return your check. Should he accept your partial payment, the foreclosure process stops and must be re-started by the lender.
End Result of the Lien Foreclosure Process
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Unless the lien foreclosure is halted by either borrower or lender, a home auction is scheduled, and the details are published in local newspapers to alert the public and potential buyers. At the appointed time, the auctioneer will accept bids for the property. The lender will have a representative on site and will normally bid up to the balance of the mortgage, accrued interest and fees due to him. If he is outbid, which he hopes to be, the buyer will pay off the outstanding mortgage. Should the lender be the highest bidder, he will assume ownership and sell the home to recover his money.
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