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What Is Foreclosure


When homeowners get into trouble paying their home mortgage payments, the bank may foreclose on the property, sometimes known as a “Bank Foreclosure.” But what exactly is foreclosure? What happens during a foreclosure situation? A real estate attorney will be able to help you answer these questions.

Bank Foreclosure

Foreclosure is defined as “A situation in which a homeowner is unable to make principal and/or interest payments on his or her mortgage, so the lender, be it a bank or building society, can seize and sell the property as stipulated in the terms of the mortgage contract.”

If you are in a foreclosure situation, you need to realize that real estate law is complicated and can vary from state to state. It is important to speak with a foreclosure attorney who specializes in real estate law before making any hasty decisions.

There are many reasons homeowners can end up in a foreclosure situation. Of course the most obvious is the lack of the mortgage loan payment. But why are homeowners not paying their mortgage?

Non-Payment Foreclosure Reasons:
  • Loss of job
  • Decrease in income
  • Major medical expenses
  • Increase in other monthly expenses
  • Divorce
  • Job transfer
Common Types of Foreclosure:
  • Foreclosure by judicial sale
  • Foreclosure by power of sale
More commonly known as Judicial Foreclosure; this method is available in all of the states and is required to be used in many. This process requires the foreclosed property to be sold under supervision of the court. The proceeds go towards fulfilling the outstanding mortgage, any other lien holders, and finally to the borrower if any funds are left over.

Foreclosure by Power of Sale

This type of sale is also allowed in many states if a power of sale clause was included in the mortgage or deed of trust. Some states use deeds of trust rather than actual mortgages. In this instance, the mortgage holder sells the property but without judicial supervision. Just as in the Judicial Sale, proceeds go first to the mortgage holder, then other lien holders and finally the borrower if any funds remain.

There is another type of foreclosure, called the strict foreclosure. This type of foreclosure was the original method of foreclosure, but now is only used in the states of Vermont, New Hampshire, and Connecticut. In this type of foreclosure, a suit is brought in court requiring the borrower to pay within a certain time and if they don’t, the lender by default acquires the property without an obligation to sell it and disperse the funds.

Warning signs that you are heading towards foreclosure:

  • You are using credit cards to buy groceries
  • Your credit card debt is overwhelming and unmanageable
  • You are having trouble meeting all of your obligations each month on time
  • You’ve had a major life change resulting in a reduction of income

Timelines for foreclosure vary by state. In some areas you may have up to a year; in other locations the time could only be months. According to the US Department of Housing and Urban Development (HUD), it is important to work with the lender during all parts of the foreclosure process. Even in the late stages, you may be able to stall or reverse the foreclosure proceeding.

Foreclosure Steps as Listed by HUD

  • First payment is missed and lender contacts you.
  • Second payment is missed and lender contacts you again. If you haven’t already done so, explain the situation as the lender may have options for you.
  • Third payment is missed and the lender will likely send you a letter of Notice to Accelerate or Notice of Default. This means you need to make arrangements to pay the outstanding balance quickly.
  • Fourth payment is missed and your case will probably be submitted to the lender’s attorneys for foreclosure proceedings.


Once the residence is a foreclosed home, the lender can begin the process to sell the property and recoup the losses. You still aren’t out of the house yet; however, your time is drawing very short.

If you are facing a bank foreclosure situation, it is imperative to contact an attorney who is well versed in foreclosure law. Real estate law is complicated and can vary from state to state.

It is important to speak with a foreclosure attorney who specializes in real estate law before making any hasty decisions. Whether you are a homeowner, landlord, or tenant, can help you find an experienced foreclosure attorney or bankruptcy attorney in your area.
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