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The Foreclosure Process Explained

The Foreclosure Process Explained

As the recession economy obliterates businesses and jobs, the term “foreclosure” is heard more frequently every day. Depending on the state in which a person lives, the foreclosure process can proceed at a snail’s pace or descend quickly like a hawk after a hapless rabbit. To avoid foreclosure and a damaged credit score, homeowners can consider refinancing, a short sale, and alternative financing, or negotiating to the lender. Bankruptcy is a solution of last resort.

Types of foreclosure in the United States are “deed in lieu of” and “strict.” During a foreclosure, the note holder retains claim to the title of the property until it has been fully paid. After payment has been defaulted, the property is put up for auction by either the sheriff’s department or the Court in order produce funds that can be used to pay back the mortgage debt. The foreclosure amount is drastically lower than the housing market, a way to discourage formulaic foreclosures. The deed is won by the winning bidder and any lenders that are owed money are paid back. If nobody wants the house then the deed is returned to the lender.

Some states have adopted a nonjudicial foreclosure procedure. The mortgagee or the mortgagee’s servicer’s attorney/designated agent gives the person in debt a notice of the default and alerts them that their property is to be put up for sale by bid. Their property is called an immovable property. This foreclosure is referred to as a “statutory” or “nonjudicial” foreclosure. If the debtor is unable to pay for the house or any other type of lawful means, such as those listed above, there is a public auction, like a sheriff’s auction. The highest bidder wins the house deed with no interest that the former owner accumulated.

However, this new immovable property may be wrapped up by liens superior, e.g., a senior mortgage. Only with a full eviction will the premises be in the possession of the deed holder. In order to protect homeowners the government requires due process, which affects the ability of lenders to foreclose properties at a fast rate. The Federal District Court of Ohio has dismissed foreclosure actions when the lender is unable to prove they are the real party involved. On June 19, 2009, in Colorado a district court judge also dismissed a foreclosure action due to the inability of the lender to prove they were the real party in interest.

Strict foreclosures refer to the period after the sale of the property has taken place, available only to the foreclosure-sale purchaser. The purchaser can make a petition to the court that cuts off any lien-holder rights to redeem the senior debt. The canceling of the lien clears the title if the lien does not redeem the senior right. This process is effective in England’s court system, as well.

It is customary in most jurisdictions for the lender to obtain a title search of the immovable property and notify all people who may have any type of lien to appear to redeem their senior debt. The notice must be a 25-day notice after the sale to the Internal Revenue Service. If there is not a notice given, then the lien will stay attached to the sale and can be redeemed. The lender must contact the IRS with this information, searching local tax records for liens. The U.S. Congress passed a law signed by President G.W. Bush that for the period Jan. 1, 2007, through Dec. 31, 2009, homeowners do not have to pay tax on any canceled debt.

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