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What is a Bank Foreclosure?
Bank foreclosure is a legal action where a property owner loses all rights to the property. In simplest terms, the lender, usually a bank or mortgage company, files a lawsuit asking that the owner’s rights be taken away.
Lenders use bank foreclosure to recover their money when the owner defaults, or fails to make payments, on the mortgage. This is true both for mortgages used to purchase a home and loans in which the home was used for collateral.
There are two basic types of bank foreclosure: strict foreclosure and foreclosure by sale.
In a strict foreclosure, the judge will set what is called a law date. Unless the mortgage is settled before then, the property owner loses all rights to the property on that date. The title to the property is then transferred to the lender.
For a foreclosure by sale, the judge sets a sale date. On the sale date, a court-appointed attorney auctions the property. The attorney, also known as a committee for sale, handles all details of the auction, including advertisement and placing a sign on the property. The money received from the auction is used first to pay for the expense of the auction, then to pay the lender. Other liens against the property also are paid from the auction funds. If there is any remaining money, it is given to the property owner.
The bank foreclosure process begins once the lender files a public default notice. The property owner will receive a Summons and Complaint, a legal document detailing why the lender is foreclosing.
When the owner receives the Summons, they have the option of “Filing an Appearance.” Filing an Appearance tells the court that the owner is not ignoring the foreclosure and wants to be notified of what is taking place. While filing an Appearance is not required, the owner cannot prevent bank foreclosure without doing so. In addition, the court is not required to notify the owner of any proceedings if the Appearance is not filed.
There are five possible ways to end a bank foreclosure:
1. The owner pays the amount in default. This has to be done during the grace period, which varies according to state law.
2. The owner sells the property. Again, this is done during the grace period. This allows the owner to use the money from the sale to pay off the loan, thus avoiding a foreclosure on their credit report.
3. The owner pays off the loan prior to the law date or sale date. The owner will also incur the legal fees and, in the case of foreclosure by sale, the auction costs. This can be done using the owner’s money or financing from another lender.
4. The home is sold at public auction.
5. The lender receives ownership of the property. The lender can receive ownership through an agreement with the owner, a strict foreclosure agreement, or by purchasing the property at public auction.
If the owner still owes a debt to the lender, the court will issue a deficiency judgment. Deficiencies occur during a strict foreclosure if the property is worth less than the total debt. In a foreclosure by sale, a deficiency occurs if the property sells for less than the debt owed.
Once the bank foreclosure process is complete, the owner is required to leave the home. If they refuse to leave, the court will issue an execution of ejectment. The ejectment allows the lender to obtain the services of a marshal to eject the owner from the property. If the owner does not leave willingly, the marshal will bring in movers who will take the owner’s possessions from the home and place them in storage.
About the Author: Alex Diaz has written widely on foreclosure and real estate. Visit his website, Foreclosure Deals for information and Bank foreclosures