Foreclosure is the legal proceeding in which a bank or another creditor sells or repossesses real estate due to the owner's failure to comply with an agreement between the lender and borrower ( the 'deed of trust'). Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, it is referred to as “the lender has foreclosed its”.
There are two sorts of foreclosure in most common law states. Using a “deed in lieu of foreclosure” the bank claims the title and possession of the property in full satisfaction of a debt, usually on contract. In the proceeding known as foreclosure , the property is auctioned by a county sheriff or some an officer of the court. The sheriff then issues a deed to the winning bidder. Banks and other institutional lenders typically bid in the amount of the owed debt at the sale, and if no other buyers step forward the lender receives title to the immovable property in return. Some states have adopted non-judicial foreclosure procedures, in which the mortgage, or more commonly the mortgage's attorney or designated agent, gives the debtor a notice of default and the mortgage's intent to sell the property in a form prescribed by state statute. 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 to stop the sale, the mortgage or its representative will conduct a public auction in a similar manner as the sheriff's auction. 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). In some cases further legal action, such as an eviction may be necessary to obtain possession of the premises.
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 lien holder's rights to redeem the senior debt. If the junior lien holder 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. 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. 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.
Some individuals and companies are engaged in the business of purchasing properties at foreclosure sales. A number of companies promoting themselves on the internet and in other advertising media have sprung up touting the profits that can be made buying properties in foreclosure. Purchasing properties in foreclosure can be a “risky business” and should not be attempted by the uninformed. Read books on foreclosure investing and purchase a good foreclosure investment software to protect yourself from buying the wrong foreclosure properties.
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