Foreclosure lawsuits are recovery methods where a lender tries to sell off the collateral to compensate for the non-payment of the mortgage amount.
Let us have a deeper look at the nooks and cranny of the foreclosure lawsuit.
A foreclosure lawsuit derives its origin from a trust deed or mortgage. The deed of trust is a contract between the lender, the receiver, and a third party that acts as a resolver in cases of a dispute, whereas the mortgage functions without the involvement of a third party.
Types of foreclosure
Generally, laws vary as per local authorities. There are three types of foreclosure mentioned in the business code.
- Judicial Foreclosure: This involves selling the property under the supervision of the court. The lender is asked to prove the borrower’s incompetence. Each side presents its opinion, and if the lender has the upper hand, the property is seized and put up for auction.
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- Non-judicial Foreclosure: Also known as “power of sale.” This method omits the court’s involvement, and the lender has the right to sell off property at his convenience.
Although the method is quick, it prohibits the lender from deficiency judgment which states that in cases when the valuation of property is less than the debt, the lender cannot ask for the rest of the debt from the borrower.
- Strict Foreclosure: The oldest method of foreclosure in which a deadline is given to the borrower for repayment of the debt. In case of further default, the courts entitle the lender to redeem the property.
Filing a foreclosure
It begins by a summon that is sent to the borrower in the initial phases of non-payment. Then, a demand letter is issued after two consecutive defaults. If the recipient responds, a settlement or deadline extension is possible without the involvement of the law.
Finally, a defaulter’s notice is filed in the court after three months of absence. This is the last ultimatum to the borrower for making up for the fault during the reinstatement period of another 90 days. After three constant non-payments, the lender issues an acceleration letter that demands them to repay all due amounts at once.
This is followed by a pre-filing notice for the borrower. The next three months are allotted for negotiations. In case of no satisfactory action, the lender can visit the court and file a legal foreclosure lawsuit.
Answering a foreclosure
As soon as the legal proceedings begin, 28 days are allotted to the borrower for answering the foreclosure. Acknowledgment expects the borrower to justify the default action, specific response to each claim, and proofs against allegations imposed for the indebtedness.
Escaping a foreclosure
The borrower still stands a chance to escape the foreclosure by following methods:
- Refinancing: It requires merciful action by the lender where the debt amount is reduced to circumvent foreclosure.
- Reinstatement: 90 days after first notice allows repaying all amounts with a penalty.
- Forbearance: In special cases of medical or financial destitution, the lender displays patience by extending deadlines of repayment.