What is Bank Foreclosure?

What is Bank Foreclosure?
Foreclosure can be defined as a legal procedure in which a bank or any financial institution either sells or regains possession of a real property (immovable property), when the owner fails to abide by the agreement that was made between the borrower and the lender. This contract is called “mortgage” or “deed of trust”. Generally this failure happens due to a non-payment of a promissory note that was guaranteed by a lien on the property. Once the foreclosure is over, it is referred to as the “foreclosure of the mortgage or lien”.

Most of the common law states in USA have two types of foreclosures. These are
• Deed in lieu of foreclosure
• Judicial foreclosure (also commonly known as foreclosure)
In “deed in lieu of foreclosure”, the lender (usually the bank) takes the property back in full satisfaction of a debt, generally on the contract.

In judicial foreclosure, the property in question is given out on auction by the sheriff or some other officer of court. Majority of the states use this procedure for some or all cases of foreclosure in order to protect an equity that the borrower may have on the property, if the amount of the debt on which the foreclosure is made is significantly less than the market value of the real property. In this situation, the sheriff or the officer issues a deed to the highest or the wining bidder at the auction. The banks or the other financial institutions bid the amount of the debt owed at the sale; if there are no buyers, they receive the possession of the property.

Few other states follow the non-judicial foreclosure procedures; in this system the lender or creditor (in most cases the mortgagee’s lawyer), issues a notice of default to the debitor mentioning his intention to sell off the real property in a form that is called “statute” by the state. This is commonly called the “statutory foreclosure” or “non-judicial” foreclosure. If the debtor fails to pay off the loan or use other lawful means (for instance filing for bankruptcy which automatically provides a temporary stay order to the foreclosure proceedings), the creditor or his agent conducts a public auction (similar to the one conducted by the sheriff as mentioned in the previous paragraph). The winning bidder gets the ownership of the immovable property which is free from any interest that was owed by the previous owner. However, the property might be constrained for a while if there are any pending issues like senior mortgage, unpaid property tax or something similar. Some cases might need further legal intervention like eviction to attain possession of the premises.

The other form of foreclosure that a few states abide by is “strict foreclosure”. In this condition, a “law date” is given by the judge. If the debtor fails to cure his mortgage within this mentioned time frame, he loses his right to the property. The bank or the mortgage company then becomes the owner of the property.

In most of the law states it is customary for the foreclosing lender to do a search and obtain data about the property and also inform all the other people who may have liens on the real property, whether by judgment, by contract, by statute or any other law, so that they may appear and display their interest in the foreclosure proceedings.

It is to be noted that there are some companies as well as individuals who are engaged in buying properties from such foreclosure sales. Quite a few of such companies are now seen over the internet and also on the papers who try to encourage people from making such buys which they claim can fetch very high profits. However, it must be remembered that indulging in these acts might prove to be extremely risky.