House in Salinas, California under foreclosure, following the popping of the U.S. real estate bubble. Salinas is the County seat and largest municipality of Monterey County in the U The United States housing bubble is an Economic bubble in many parts of the United States housing market including areas of California, A real estate bubble or property bubble (or housing bubble for residential markets is a type of Economic bubble that occurs periodically in local or global

Foreclosure is the legal proceeding in which a mortgagee, usually a lender, obtains a court ordered termination of a mortgagor's equitable right of redemption. Equity is the name given to the set of legal principles in jurisdictions following the English common law tradition which supplement strict rules of law where Usually a lender obtains a security interest from a borrower who mortgages or pledges an asset like a house to secure the loan. If the borrower defaults and the lender tries to repossess the property, courts of equity can grant the owner the right of redemption if the borrower repays the debt. A chancery court, Equity court or court of equity is a court that is authorized to apply principles of equity (as opposed to law to cases brought When this equitable right exists, the lender cannot be sure that it can successfully repossess the property, thus the lender seeks to foreclose the equitable right of redemption.

The foreclosure process as applied to residential mortgage loans is a bank or other secured creditor selling or repossessing a parcel of real property (immovable property) after the owner has failed to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation (usually but not always the payment of a debt A creditor is a party (eg person organization company or government that has a claim to the services of a second party In the Common law, real property (or realty) refers to one of the two main classes of Property, the other class being Personal property ( In the Common law, real property (or realty) refers to one of the two main classes of Property, the other class being Personal property ( A mortgage is the pledging of a property to a Lender as a security for a Mortgage loan. A mortgage is the pledging of a property to a Lender as a security for a Mortgage loan. Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. In Finance, default occurs when a debtor has not met its legal obligations according to the debt contract e A promissory note, also referred to as a note payable in Accounting, is a Contract where one party (the maker or issuer) makes an In Law, a lien is a form of Security interest granted over an item of Property to secure the payment of a Debt or performance of some other When the process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said that "the lender has foreclosed its mortgage or lien". A mortgage is the pledging of a property to a Lender as a security for a Mortgage loan. In Law, a lien is a form of Security interest granted over an item of Property to secure the payment of a Debt or performance of some other If the promissory note was made with a recourse clause then if the sale does not bring enough to pay the existing balance of principle and fees the mortgagee can file a claim for a deficiency judgement.

Types of foreclosure

The mortgage holder can usually initiate foreclosure at a time specified in the mortgage documents, typically some period of time after a default condition occurs. Within the United States and many other countries, several types of foreclosure exist. Two of them --- namely, by judicial sale and by power of sale --- are widely used, but other modes of foreclosure are also possible in a few states.

Foreclosure by judicial sale, more commonly known as Judicial Foreclosure, is available in every state and required in many, involves the sale of the mortgaged property under the supervision of a court, with the proceeds going first to satisfy the mortgage; then other lien holders; and, finally, the mortgagor/borrower if any proceeds are left. As with all other legal actions, all parties must be notified of the foreclosure, but notification requirements vary significantly from state to state. A judicial decision is announced after pleadings at a (usually short) hearing in a state or local court. In some fairly rare instances, foreclosures are filed in Federal courts.

Foreclosure by power of sale, which is also allowed by many states if a power of sale clause is included in the mortgage. This process involves the sale of the property by the mortgage holder without court supervision. It is generally more expedient than foreclosure by judicial sale. As in judicial sale, the mortgage holder and other lien holders are respectively first and second claimants to the proceeds from the sale.

Other types of foreclosure are considered minor because of their limited availability. Under strict foreclosure, which is available in a few states including Connecticut, New Hampshire and Vermont, suit is brought by the mortgagee and if successful, a court orders the defaulted mortgagor to pay the mortgage within a specified period of time. Should the mortgagor fail to do so, the mortgage holder gains the title to the property with no obligation to sell it. Historically, strict foreclosure was the original method of foreclosure.

Acceleration

The concept of acceleration is used to determine the amount owed under foreclosure. Acceleration allows the mortgage holder to declare the entire debt of a defaulted morgagor due and payable. If a mortgage is taken, for instance, on a $10,000 property and monthly payments are required, the mortgage holder can demand the mortgagor make good on the entire $10,000 if the mortgagor fails to make one or more of those payments.

The vast majority (but not all) of mortgages today have acceleration clauses. The holder of a mortgage without this clause has only two options: either to wait until all of the payments come due or convince a court to compel a sale of some parts of the property in lieu of the past due payments. Alternatively, the court may order the property sold subject to the mortgage, with the proceeds from the sale going to the payments owed the mortgage holder.

Process

The process of foreclosure can be rapid or lengthy and varies from state to state. Other options such as refinancing, alternate financing, temporary arrangements with the lender, or even bankruptcy may present homeowners with ways to avoid foreclosure. Refinancing refers to the replacement of an existing debt obligation with a debt obligation bearing different terms Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their Creditors Creditors may file a bankruptcy petition against ^[1] Websites which can connect individual borrowers and homeowners to lenders are increasingly offered as mechanisms to bypass traditional lenders while meeting payment obligations for mortgage providers.

In the United States, there are two types of foreclosure in most common law states. The United States of America —commonly referred to as the Common law refers to law and the corresponding legal system developed through decisions of courts and similar tribunals rather than through legislative statutes or executive Using a "deed in lieu of foreclosure," or "strict foreclosure", the noteholder claims the title and possession of the property back in full satisfaction of a debt, usually on contract. A Deed in lieu of foreclosure is a Deed instrument in which a mortgagor (i Title is a legal term for a bundle of rights in a piece of property in which a party may own either a legal interest or an equitable interest The rights In the proceeding simply known as foreclosure (or, perhaps, distinguished as "judicial foreclosure"), the property is subject to auction by the county sheriff or some other officer of the court. "Auctioneer" redirects here For the DC Comics supervillain see Auctioneer (comics. SHERIFF is a telecom fraud detection and management system originally developed by BT and MCI. Many states require this sort of proceeding in some or all cases of foreclosure, in order to protect any equity the debtor may have in the property, in case the value of the debt being foreclosed on is substantially less than the market value of the immovable property (this also discourages strategic foreclosure). In accounting terms after all liabilities are paid ownership equity is the remaining interest in Assets If valuations placed on assets do not exceed liabilities In this foreclosure, the sheriff then issues a deed to the winning bidder at auction. Banks and other institutional lenders may bid in the amount of the owed debt at the sale but there are a number of other factors that may influence the bid, and if no other buyers step forward the lender receives title to the immovable property in return.

Other states have adopted non-judicial foreclosure procedures in which the mortgagee, or more commonly the mortgagee's servicer's attorney or designated agent, gives the debtor a notice of default and the mortgagee's intent to sell the immovable property in a form prescribed by state statute. A statute is a formal written enactment of a Legislative authority that governs a Country, State, City, or County. This type of foreclosure is commonly referred to as "statutory" or "non-judicial" foreclosure, as opposed to "judicial". With this "power-of-sale" type of foreclosure, if the debtor fails to cure the default, or use other lawful means (such as filing for bankruptcy which provides a temporary automatic stay to the foreclosure proceeding) to stop the sale, the mortgagee or its representative will conduct a public auction in a similar manner as the sheriff's auction described above. Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their Creditors Creditors may file a bankruptcy petition against "Auctioneer" redirects here For the DC Comics supervillain see Auctioneer (comics. The highest bidder at the auction becomes the owner of the immovable property free and clear of any interest of the former owner but the property may be encumbered by any liens superior to the mortgage being foreclosed (e. g. a senior mortgage, unpaid property taxes etc). Further legal action, such as an eviction may be necessary to obtain possession of the premises. Eviction is the removal of a Tenant from rental property by the Landlord.

"Strict foreclosure" is an equitable right available in some states. The strict foreclosure period arises after the foreclosure sale has taken place and is available to the foreclosure sale purchaser. The foreclosure sale purchaser must petition a court for a decree that will cut off any junior lienholder's rights to redeem the senior debt. If the junior lienholder fails to do so within the judicially established time frame, his lien is cancelled and the purchaser's title is cleared. This effect is the same as the strict foreclosure that occurred at common law in England's courts of equity as a response to the development of the equity of redemption.

In most jurisdictions it is customary for the foreclosing lender to obtain a title search of the immovable property and to notify all other persons who may have liens on the property, whether by judgment, by contract, or by statute or other law, so that they may appear and assert their interest in the foreclosure litigation. A title search is a process that is performed to determine the answers to two questions In Law, a lien is a form of Security interest granted over an item of Property to secure the payment of a Debt or performance of some other In non-legal contexts a judgment is a balanced weighing up of evidence preparatory to making a decision A contract is an exchange of promises between two or more parties to do or refrain from doing an act which is enforceable in a court of law A statute is a formal written enactment of a Legislative authority that governs a Country, State, City, or County. In all US jurisdictions a lender who conducts a foreclosure sale of immovable property which is the subject of a federal tax lien must give 25 days' notice of the sale to the Internal Revenue Service: failure to give notice to the IRS will result in the lien remaining attached to the immovable property after the sale. The Therefore, it is imperative that the lender obtain a search of the local Federal Tax Liens so that if the persons or companies involved in the foreclosure have a federal tax lien filed against them, the proper notice to the IRS will be given. A detailed explanation by the IRS of the Federal Tax Lien process can be found. ^[2]

The US congress passed and President Bush signed into law a temporary change to the tax code. For the period Jan. 1, 2007, through Dec. 31, 2009, homeowners will not have to pay tax on any debt that is cancelled. ^[3] (note that there are exceptions, such as when the cancelled debt is not on the borrowers' primary residence. )

Foreclosure auction

When the entity (in the US, typically a county sheriff) auctions a foreclosed property the noteholder may set the starting price as the remaining balance on the mortgage loan. However, there are a number of issues that affect how pricing for properties is considered, including bankruptcy rulings. In a weak market the foreclosing party may set the starting price at a lower amount if it believes the real estate securing the loan is worth less than the remaining principal of the loan.

In the case where the remaining mortgage balance is higher than the actual home value the foreclosing party is unlikely to attract auction bids at this price level. A house that went through a foreclosure auction and failed to attract any acceptable bids may remain the property of the owner of the mortgage. That inventory is called REO (real estate owned). Real estate owned or REO is a class of Property owned by a lender typically a Bank, after an unsuccessful sale at a Foreclosure auction In these situations the owner/servicer will try to sell it through standard real estate channels.

Further borrower's obligations

The mortgagor may be required to pay for Private Mortgage Insurance, or PMI, for as long as the principal of his primary mortgage is above 80% of the value of his property. Lenders Mortgage Insurance ( LMI) also known as Private mortgage insurance (PMI in the US is insurance payable to a lender or trustee for a pool of securities that In most situations, insurance requirements are sufficient to guarantee that the lender will get some pre-defined percentage of the loan value back, either from foreclosure auction proceeds or from PMI or a combination thereof.

Nevertheless, in an illiquid real estate market or following a significant drop in real estate prices, it may happen that the property being foreclosed is sold for less than the remaining balance on the primary mortgage loan, and there may be no insurance to cover the loss. In this case, the court overseeing the foreclosure process may enter a deficiency judgment against the mortgagor. A deficiency judgment is a judgment Lien against a Debtor, Defendant or Borrower whose Foreclosure sale did not produce sufficient Deficiency judgments can be used to place a lien on the borrower's other property that obligates the mortgagor to repay the difference. It gives lender a legal right to collect the remainder of debt out of mortgagor's other assets (if any).

There are exceptions to this rule, however. If the mortgage is a non-recourse debt (which is often the case with residential mortgages), lender may not go after borrower's assets to recoup his losses. A nonrecourse debt or non-recourse debt or nonrecourse loan is a Secured loan (debt that is secured by a pledge of collateral, typically Lender's ability to pursue deficiency judgment may be restricted by state laws. In California and some other states, original mortgages (the ones taken out at the time of purchase) are typically non-recourse loans, however, refinanced loans and home equity lines of credit aren't.

If the lender chooses not to pursue deficiency judgment—or can't because the mortgage is non-recourse—and writes off the loss, the borrower may have to pay income taxes on the unrepaid amount if it can be considered "forgiven debt. " However, recent changes in tax laws may change the way these amounts are reported.

Any liens resulting from other loans taken out against the property being foreclosed (second mortgages, HELOCs) are "wiped out" by foreclosure, but the borrower is still obligated to pay those loans off if they are not paid out of foreclosure auction's proceeds. A second mortgage typically refers to a Secured loan (or mortgage) that is subordinate to another loan against the same property A home equity line of credit (often called HELOC and pronounced HEE-lock is a Loan in which the lender agrees to lend a maximum amount within an agreed period (called

Foreclosure investment

U. S. foreclosure trends: number of foreclosures available

Some individuals and companies are engaged in the business of purchasing properties at foreclosure sales. Distressed assets (such as foreclosed property or equipment) are considered by some to be worthwhile investments because the bank or mortgage company is not motivated to sell the property for more than is pledged against it.

The number of households in foreclosure increased 79 percent in 2007, with about one of every 100 U. S. households at some stage of the foreclosure process, according to the latest numbers from data aggregator RealtyTrac. ^[4] According to the detailed statistics the foreclosure rate (number of foreclosures available, see the picture) in the US is constantly growing and this situation is favorable for the foreclosure investment. The United States of America —commonly referred to as the

Countries other than the USA

• Australia & New Zealand - Foreclosures are generally referred to as Mortgagee sales or Mortgagee auctions. Foreclosure is the legal proceeding in which a mortgagee, or other Lienholder, usually a lender obtains a court ordered termination of a mortgagor Mortgagee auction is the term used in both Australia & New Zealand to describe a property Foreclosure auction In those cases, the bank or lender ("Mortgagee") forces the borrower ("Mortgagor") to sell under the terms of the loan contract.
• United Kingdom - Foreclosure is a little used remedy which vests the property in the mortgagee with the mortgagor having no right to any surplus from the sale. Because this remedy can be harsh, courts almost never allow it. Instead they will grant an order for possession and an order for sale, which mitigates some of the harshness of the repossession by allowing the sale.

References

See also

• HUD auction
• Deed in lieu of foreclosure
• Equity stripping
• Repossession
• Real estate trends
• Tax taking - Tax Sales, Tax Auctions, Tax Foreclosures
• Short sale (real estate)