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Foreclosure is the legal process of the mortgage holder taking the collateral for a promissory note in default. The process is slightly different from state to state, but there are basically two types of foreclosure, judicial and non-judicial. In mortgage states, judicial foreclosure is used, whereas in deed of trust states, non-judicial foreclosure is used. Most states permit both types of proceedings, but it is common practice in most states to use exclusively one method or the other.
Reinstating the Loan
Many states permit a borrower to “cure” the loan before the date of sale. This simply requires paying the amount in arrears, plus interest and attorney’s fees. It is certainly more desirable for a defaulting borrower to reinstate a loan rather than pay off the entire principal balance.
Virtually all states have specific laws requiring a reasonable notice to the defaulting borrower before the lender can accelerate the debt. If you are a lender, make sure you review the default notice with your attorney to ensure compliance with state law. If your attorney or other party sends the notice, be sure he complies with the Federal Fair Debt Collection Practices Act.
Redemption Rights
Some states give a borrower the right to “redeem” the amount owed and get title to the property back after the sale. The length of the redemption period changes from state to state. The highest right of redemption is from the owner, borrower or guarantor on note. Behind him come the junior lien holders who are in danger of being wiped out by the foreclosing senior lien holder.
In states where there is a long redemption period, investors often buy the junior liens on the property to have the right to redeem the property from foreclosure. The holder of the most junior lien has the last right to redeem the property by paying off all underlying liens. The owner, of course, has the highest right. Obtaining a quitclaim deed from the owner gives you the right to redeem the property yourself.
Courtesy of: Attorney William Bronchick
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