About Foreclosure Law

Foreclosures are methods by which lenders seek to recoup the money from a loan on which a borrower has defaulted by seizing the property and selling it. There are laws governing the ways in which this can be done that seek to ensure fairness to both parties. In most cases, the laws regarding foreclosures fall into one of two groups: judicial or non-judicial.

Judicial foreclosure
When the borrower, called a mortgagor, is unable to repay their debt, their property may be sold in order to repay the lender, or mortgagee. When the property is sold, the mortgagee and any other lien holders collect what they are owed from the returns, and anything above that is returned to the borrower. This process is overseen by a court. The lender begins the foreclosure proceedings by suing the borrower for the right to seize and sell the house. The requirements regarding notifying a borrower of the foreclosure action varies from state to state, therefore it is important for anyone with a mortgage to be aware of the rules in their state. Foreclosures can be very damaging to the credit of the person foreclosed upon.

Deed in lieu of foreclosure
This is a type of non-judicial foreclosure in that it does not involve the courts. Both mortgagor and mortgagee enter into an agreement to use the property to satisfy the debt. This means that the value of the property releases the mortgagor from all debts without the necessity of foreclosure proceedings in a court. The mortgagor is required to notify the mortgagor of the fact that they have defaulted on their loan, and if there is no response from them, then a foreclosure sale of the property may be initiated. This method is less harmful to the credit rating and reputation of the mortgagor.