Home Foreclosure in a Nutshell

Foreclosure is now a common term, because so many home foreclosures are happening in today's market. But what is foreclosure? How does it happen, and what are the kinds of foreclosures?

Most people need financing from a lender to buy a house or a property, because a house costs more than they can save up nowadays. For some reason, if the borrower misses his mortgage payments, the borrower goes into "default", which starts the process to allow the lender to either sell the house or repossess it in order to pay off the loan.

Late mortgage payments are given three-months for the borrower to fix to catch up, while the lender prepares the foreclosure proceedings.

3 Types of Home Foreclosure

Judicial Foreclosure

Some states don't allow a non-judicial foreclosure. In a judicial foreclosure, the lender sues the homeowner in court. If the homeowner doesn't respond to the lawsuit, the lender wins the case and he is given the title of the house which he can sell or auction to the public.

A court official presides over the auction. The mortgage lender can bid along with other bidders. The bidder with the highest bid is given the title and the proceeds of the auction go to the mortgage lender to pay off the debt.

Non-Judicial Foreclosure

This kind of home foreclosure is done without a lawsuit. The trustee for the Trust Deed issues a mortgage default for the lender against the homeowner with the intent to sell the property at auction. The homeowner can then try to stop the process by making an agreement with the lender or by paying the mortgage default.

The agreement with the lender could include a plan to repay the mortgage, or could give an option to delay payments, or other conditions that are usually time-bound.

Strict Foreclosure

This is a foreclosure without a sale or auction. Instead, the title of the house goes directly to the mortgage lender. The lender usually has real property agents or brokers who sell foreclosed houses. The proceeds of the sale are used to pay off the mortgage default. But, if the house sells for less than is owed, there is a deficiency judgment (say the selling price of the house is $120, 000 and the actual balance is $150, 000), and the homeowner is still liable for the remaining balance.