Foreclosure is a general term for processes used by mortgage holders, or mortgagees, to seize mortgaged property from borrowers who don't pay their mortgages. Foreclosure, like mortgages in general, is governed by the law of the place where the mortgaged is located. They are usually done in two ways. If done by filing a lawsuit, it's called judicial foreclosure.
In some states, the lender can enforce a foreclosure without going to court, and that's called non-judicial foreclosure. State foreclosure processes require borrowers to be notified of the foreclosure procedure. Other federal regulations may also apply. Foreclosure is a process that begins when a borrower fails to make payments on their mortgage.
When a foreclosure is executed, the lender usually recovers it and attempts to sell it. The time elapsed from notification of foreclosure to the actual sale of the property depends on many factors, such as the method of foreclosure (judicial or non-judicial). In most jurisdictions, it is common for the lender who executes the foreclosure to seek title to the real property and notify all other individuals who may have liens on the property, whether by judgment, contract, law or other law, so that they can appear and assert their interest in foreclosure litigation. The foreclosure process, as applied to residential mortgage loans, involves a bank or other secured creditor selling or regaining possession of a parcel of real estate after the owner has failed to comply with an agreement between the lender and the borrower called a mortgage or deed of escrow.
The Consumer Financial Protection Office offers resources to help you detect and avoid foreclosure scams. In states with non-judicial foreclosure, more direct foreclosure processes are also allowed for deeds of sale and loans with a power of sale clause. In this case, the court that oversees the foreclosure process may issue a judgment of deficiency against the mortgage creditor. Non-judicial foreclosure generally occurs when your mortgage has a power of sale clause or if your promissory note is linked to a deed of trust.
Jurisdictions, a lender who conducts a foreclosure sale of real estate that is subject to a federal tax lien must give 25 days notice of the sale to the Internal Revenue Service. While this won't be an option if you've already started the foreclosure process, refinancing can also be a solution. The number of points where a foreclosure will affect your credit score varies depending on your credit history. This is not necessary in those states that issue disability judgments without filing a lawsuit when the foreclosure occurs on the mortgage or trust deed.
Until the time of foreclosure (or even later in some states), the delinquent borrower can pay all late payments and costs (which are later higher due to foreclosure costs) and redeem the property. If the foreclosure is approved, the local sheriff auctions the property to the highest bidder to try to recover what is owed to the bank, or the bank becomes the owner and sells the property through the traditional route to recover its losses. If you fear that you may be heading for foreclosure, refinancing to a more affordable payment can help you avoid default on your loan. A noteworthy court case questions the legality of the foreclosure practice and is sometimes cited as evidence of several lawsuits related to loans.