{"id":369148,"date":"2016-04-04T10:47:15","date_gmt":"2016-04-04T15:47:15","guid":{"rendered":"https:\/\/content.findlaw-admin.com\/ability-law\/realestate\/foreclosure\/what-is-foreclosure.html"},"modified":"2023-11-24T19:04:36","modified_gmt":"2023-11-25T00:04:36","slug":"what-is-foreclosure","status":"publish","type":"page","link":"https:\/\/www.findlaw.com\/realestate\/foreclosure\/what-is-foreclosure.html","title":{"rendered":"What Is Foreclosure?"},"content":{"rendered":"\n
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What Is Foreclosure?<\/h1>\n
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\n By Robert Rafii, Esq.<\/a> | Legally reviewed by Katrina Wilson, Esq.<\/a>\n | Last updated\n
\n \n <\/i>\n Legally Reviewed\n <\/summary>\n\n
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This article has been written and reviewed for legal accuracy, clarity, and style by FindLaw\u2019s team of legal writers and attorneys<\/a> and in accordance with our editorial standards<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n\n

\n \n <\/i>\n Fact-Checked\n <\/summary>\n\n
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The last updated date refers to the last time this article was reviewed by FindLaw or one of our contributing authors<\/a>. We make every effort to keep our articles updated. For information regarding a specific legal issue affecting you, please contact an attorney in your area<\/a>.<\/em><\/p>\n\n <\/div>\n <\/details>\n<\/section>\n

Foreclosure is the legal right of a creditor to take back a property when a borrower stops making mortgage payments. Through the foreclosure process, a mortgage lender or other third-party lien holder gains ownership of a property. They may have a right to sell the foreclosed property and use the proceeds to pay off the mortgage. This usually happens if the mortgage or lien is in default, meaning the homeowner has missed payments.<\/p>\r\n

Foreclosure proceedings have existed for centuries. Initially, the legal process gave automatic ownership of the property to the holder of the mortgage loan (the \u201cmortgagee") upon default. Today, foreclosure works differently. The law has developed over the years to allow borrowers (\u201cmortgagors") time to pay off mortgages before their property is taken away.<\/p>\r\n

Today, numerous state laws and regulations govern foreclosure to protect homebuyers from unfairness, scams, and fraud. In the US, although states have their own variations, the basic premises of how it works remain the same. For a basic introduction, download FindLaw’s Guide to Foreclosure<\/a> [pdf].<\/p>\r\n

Types of Foreclosure<\/h3>\r\n

The mortgage holder can usually initiate foreclosure any time after a default on the mortgage. In pre-foreclosure, the lender will typically issue a notice of default to the borrower. The borrower’s credit report and credit score may be affected absent timely repayment.<\/p>\r\n

In the United States, there are several types of foreclosure that affect homeownership. Two are widely used, with the rest being possibilities only in a few states.<\/p>\r\n

Judicial Foreclosures<\/b><\/p>\r\n

The most important type of foreclosure is foreclosure by judicial sale. This is available in every state and is the required method in many. It involves the sale of the mortgaged property under the supervision of a court. The proceeds go in order to:<\/p>\r\n

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  1. Satisfy any senior, secured government liens, such as unpaid property taxes<\/li>\r\n
  2. Satisfy the mortgage <\/li>\r\n
  3. Satisfy other lien holders <\/li>\r\n
  4. To the mortgagor<\/li>\r\n<\/ol>\r\n

    Because it is a legal action, all the proper parties must be notified of the foreclosure. There will be both pleadings and some sort of judicial decision, usually after a short trial.<\/p>\r\n

    Nonjudicial Foreclosures<\/b><\/p>\r\n

    The second type of foreclosure is foreclosure by power of sale. Also known as nonjudicial foreclosure, it involves the sale of the property by the mortgage holder without the supervision of a court. Where it is available, foreclosure by power of sale is a more expedient way of foreclosing on a property than foreclosure by judicial sale. The majority of states allow this method of foreclosure. Again, proceeds from the sale go first to the mortgage holder, then to other lien holders, and finally to the mortgagor.<\/p>\r\n

    Other Foreclosures<\/b><\/p>\r\n

    Other types of foreclosure are only available in limited places and are therefore considered minor methods of foreclosure. Strict foreclosure is one example. Under strict foreclosure, when a mortgagor defaults, a court orders the mortgagor to pay the mortgage within a certain period. If the mortgagor fails, the mortgage holder automatically gains title. The holder will have no obligation to sell the property. <\/p>\r\n

    Strict foreclosure was the original method of foreclosure, but today it is only available in Connecticut and Vermont.<\/p>\r\n

    Acceleration<\/h3>\r\n

    The concept of acceleration is used to determine the amount owed under foreclosure when the mortgagor defaults on the mortgage. Acceleration allows the mortgage holder the right to declare the entire debt due and payable. Suppose a mortgage is taken out on a property for $100,000 with monthly payments required. If the mortgagor fails to make the monthly payments, the mortgage holder can demand the mortgagor make good on the entire $100,000 of the mortgage.<\/p>\r\n

    Almost all mortgages today have acceleration clauses. However, they are not imposed by statute (codified law). If a home loan contract does not have an acceleration clause, the mortgage holder has no choice but to accept one of the following:<\/p>\r\n