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Foreclosure Information
What Is Foreclosure?
Foreclosure is the legal proceeding in which a bank or other
secured creditor sells or repossesses a piece of real property due to the
owner's default on its promissory note. When the process is complete, it is
typically said that "the lender has foreclosed its mortgage or lien."
In the United States, there are two sorts of foreclosure in most common law
states. Under "strict foreclosure," the bank claims the title and possession of
the property back in full satisfaction of a debt, usually on contract. In the
proceeding simply known as foreclosure, the property is exposed to auction by
the county sheriff or some other officer of the court. Many states require this
latter sort of proceeding in some or all cases of foreclosure, in order to
protect any equity the debtor may have in the property, in case the value of the
debt being foreclosed on is substantially less than the market value of the
property (this also discourages strategic foreclosure). In this foreclosure, the
sheriff then issues a deed to the winning bidder at auction. Banks and other
institutional lenders typically bid in the amount of the owed debt at the sale,
and if no other buyers step forward they get title to the property in return.
Other states have adopted non-judicial foreclosure proceedings, in which the
mortgagee, or more commonly the mortgagee's attorney, gives the homeowner a
legally specified notice of the default and the mortgagee's intent to sell the
property. If the homeowner fails to cure its default, or use other lawful means
(such as filing for bankruptcy) to stop the sale, the mortgagee or its
representative will conduct a public auction in a similar manner as the
sheriff's auction described above. The highest bidder at the auction becomes the
owner of the property free and clear of any interest of the former homeowner.
In most jurisdictions it is customary for the foreclosing lender to run a title
search of the property and to name 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 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 property after the sale.
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