Mortgage & Lien Enforcement or Defense

What is a foreclosure and how does it happen?

A person or  business buys real estate,  a building or other property and obtains a loan from a bank or other person to help finance the purchase. The bank or lender will receive a mortgage on the real estate as collateral for repayment of the loan.

The bank, as a secured creditor,  requires a mortgage or security interest in the property, in case the borrower fails to pay. The purchase agreement contains a clause that allows the creditor to take back the property if the borrower defaults. In some cases, an acceleration clause is included in the agreement, which means the borrower may owe the entire amount if the loan is in default.

If there is a default for non payment, the creditor sends notice of default to the debtor, who is given a period of time,  to cure the default. The owner/debtor can make cure the default by making payment on the loan to bring the loan current, including penalties and interest or the owner/debtor can try to negotiate a voluntary work out arrangements with the creditor. An alternative is for the owner/ debtor to file for bankruptcy protection by formally declaring bankruptcy. If the debtor is not able to cure the default within this time period, the property is seized and sold, with the proceeds going first to the primary lien holder and to others who hold liens on the property, with any remaining balance, if any, going back to the borrower.

The most common type of foreclosure is judicial foreclosure, in which the sale of the property is placed under the jurisdiction of the court. Some states may allow foreclosure by power of sale, which allows the mortgage holder to sell the property without court supervision.

In some circumstances, the creditor may agree to take the deed (ownership) of the property back. The transfer of ownership and the fair market value of the property must be agreed to by both parties and negotiated.

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