LAW 516-001 – Property II

Foreclosure


A foreclosure occurs when there is a default on a mortgage.

In the event of a default, there are three options:

  1. Strict Foreclosure
    • Classical approach where the mortgagee takes possession of the property.
    • While still theoretically available in a few states, most foreclosures involve a foreclosure sale.
  2. Judicial Foreclosure
    • Judicial foreclosure is when one uses the judicial process to take possession of the property and sell it in a public sale.
    • Available in every state
  3. Non-Judicial Foreclosure
Redeem

In either type of foreclosure sale, the mortgagor has the right to redeem the mortgage by paying the entire balance of the debt. Some states provide a statutory right of redemption, allowing the mortgagor to redeem the property even after the foreclosure sale.

Right of Reinstatement

Contracts can and some state statutes do allow for a right of reinstatement, allowing a mortgagor to cure his default by paying all past-due amount.

This generally must be done early in the contract early in the foreclosure process. Illinois's statute requires it to be paid within 90 days of receiving notice.

If a sale's value exceeds the balance of the mortgage, the extra must be paid to the mortgagor.

  1. Judicial Foreclosure

    Judicial foreclosure is where a full judicial proceeding is used to take possession of and effect a public sale of the foreclosed property.

    Judicial foreclosure requires joining all person with interests junior to the mortgagee. If one is not joined, his interest will not be terminated.

    Process of judicial foreclosure:

  2. Non-Judicial Foreclosure

    Some states allow mortgage contracts to grant the mortgagee the power to sell the property in the event of a default.

    These non-judicial foreclosures, also known as foreclosures by power of sale, allow the mortgagee to conduct a public sale of the property on his own, but still require notice to be given to the interested parties.

    If it is deed of trust mortgage, the sale would be conducted by the trustee instead.