Are You Ready To Invest In Foreclosures?
Definition of Foreclosures
Definition of Foreclosures
"Foreclosure" is the legal process of a mortgage holder taking collateral for a promissory note in default. Although the process may vary from state to state, there are two types of foreclosures -- judicial and non-judicial. Most states allow both types of proceedings, but it is common practice for states to use one or the other.
What is a Judicial Foreclosure? A judicial foreclosure is a lawsuit that the lender (mortgage holder) brings against the borrower (mortgagor) to take the property. Like any lawsuit, it begins with a summons and a complaint served on the borrower. If the borrower does not answer the complaint, the lender will win the judgment by default. A designated person is then appointed by the court to provide the total amount of interest and attorney's fees that must be paid by the borrower. The lender must advertise a notice of the sale in a local newspaper for 4-6 weeks. A public sale is conducted if the loan is not brought current. The sale is an auction-type where bids are made and the highest bidder gains ownership of the property. If the final bid amount does not cover the amount owned to the lender, the lender may be entitled to a judgment against the borrower for the remainder of the amount owed. In some states, the lender may not be able to take action against the borrower.
What is a Non-Judicial Foreclosure? Some states allow a lender to foreclose without a lawsuit. This is called a "power of sale." Instead of a mortgage, the borrower gives a "deed of trust" to a trustee to hold for the lender. If the borrower defaults, the lender can file a notice of default and a notice of sale, which must be published in a local newspaper. This process normally takes about 90 days. The borrower usually has a right to redeem the property after the sale. In some states, a borrower has a right to pay the amount due to regain the title to the property after the sale. These terms vary by state.
What is Strict Foreclosure? There are a few states that allow "strict" foreclosure. This does not require a sale of the property. Basically, the proceedings are started; the borrower has a certain time frame to pay what is due. If this is not successfully accomplished, the title reverts back to the lender. As you can see, there is a lot to learn about foreclosures. You must have a thorough understanding about the laws of your state, so you'd better be prepared before you dive into the deep end of the real estate investing pool. The good news is, aligning yourself with seasoned pros or a real estate coach can help by walking you through the shallow end until you learn to swim on your own.
by: Tasha Gill
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