A foreclosure is a process by which the lender can recover the balance amount from the borrower when the borrower is not able to pay, by either taking the ownership of the property or selling the property as a loan security. Usually, the borrower is supposed to give the lender a security interest to secure the loan.
The lender can initiate the foreclosure procedure on the basis of the time specified in the agreement document between the lender and the borrower.
The two main types of foreclosure producers:
Judicial foreclosure: The judicial foreclosure is initiated by the lender against the borrower by filing a lawsuit. Here, the sale of the property that is mortgaged takes place under the court’s supervision. The decision is given after pleadings are made.
Non judicial foreclosure: This is also known as foreclosure by power of sale, which comes into power if the power of sale clause or the deed of trust clause is included in the process of mortgage. In this foreclosure process, the lender or the mortgage holder can sell the property without the need of court supervision.
Impact of Foreclosures:
Foreclosures can have negative impact not only on the homeowners but also on many other aspects. For example, when the rates for foreclosures increase, they may impact the sale value of the property neighboring the foreclosure houses. Thus we can say that a foreclosure impacts the neighborhood as a whole and not only one house.
Ways to avoid a foreclosure:
There are some options that can help in avoiding foreclosure, including forbearance (where a certain time limit is provided to the borrower to make the payment before going for a foreclosure), loan modification options (where the loan terms are modified according to the convenience of the homeowner), Deed-in-Lieu, bankruptcy and sale of the property.