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Default of Payment of Property Loans (Foreclosure)

Jul 24, 2008
Foreclosure is a legal term often on the minds of many American homeowners. The average American family works hard to afford a home in which their family can live comfortably. Most families do not have the cash up front to pay for their dream house in full. They will seek a loan from a financial lending institution such as a bank or a mortgage company to buy this home.

However, in order to secure the loan, these lending institutions have to be certain that you as the borrower will pay them their money back. A good paying job doesn't guarantee that a loan of this size will definitely be paid back, so most of these institutions require collateral, an asset that they can seize the in the event you default on the loan and are no longer paying it back. Normally, the home you are purchasing with the mortgage is put up as collateral.

The lender can obtain a court order giving legal permission to put a property into foreclosure. Sometimes all it takes to be put into foreclosure is not making your payments by the due date.

In some cases, the lending institution might attempt foreclosure on your home or other property, but if you repay the loan, a court of equity may rule in your favor as the borrower; at that point, you might be able to keep the home even if it was up for foreclosure previously.

You sign a contract when you take out a loan, and this is between you and the financial lending company. This contract is called a mortgage or deed of trust. When you enter the contract, effectively, the lending company has agreed to give you a certain amount of money with which to purchase your property. You as the borrower agree to pay this money back, signing a promissory note stating that you will do so. The contract will also likely stipulate that a lien will be placed on the property so that the financial lending company can seize the property or repossess it if you do not pay the loan back in the time frame stipulated and according to the conditions spelled out in the contract itself.

The process of foreclosure is used in any contract whereby real estate, homes, farms, land, and other immovable property has been obtained through a mortgage, and the mortgage holder has defaulted on the payments.

Judicial foreclosure is available in every US state. If you as the borrower default on your loan, the property can be sold. Once the property is sold, those proceeds go to repay the balance on the existing loan, and then to any other lien holders. Finally, any remaining monies go to you, the borrower, if any proceeds are left over. All of these transactions are taken care of through the court system, legally.

Foreclosure by power of sale is sometimes added as a clause in the mortgage contract that defines the foreclosure procedure without court intervention. This procedure follows the same order as the Judicial Foreclosure however faster since the courts are not involved.
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