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Simple English definitions for legal terms
foreclosure sale
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A quick definition of foreclosure sale:
A foreclosure sale is when a bank or lender sells a property that the borrower couldn't pay for. There are three types of foreclosure processes: judicial, power of sale, and strict foreclosure. In a judicial foreclosure, the lender files a lawsuit against the borrower, and the property is sold at auction by the sheriff. In a power of sale, the mortgage company sells the property at auction without going to court. In a strict foreclosure, the court orders the property to be transferred back to the lender. The foreclosure process starts when the borrower misses a payment, and the lender sends a missed payment notice. If the borrower doesn't pay, the lender sends a demand letter and a breach letter. If the borrower still doesn't pay, the lender files a lawsuit, and the court orders the sale of the property at auction. The borrower can sometimes pay the missed payments during a redemption period to stop the foreclosure process. A foreclosure sale will negatively affect the borrower's credit report for seven years.
A more thorough explanation:
A foreclosure sale is the final step in a legal process where a mortgaged property is sold at auction or transferred back to the lender after the borrower defaults on their loan payments. The purpose of a foreclosure sale is for the lender to recover some or all of the money owed on the loan.
There are three types of foreclosure legal processes:
- Judicial foreclosure: This process involves the lender filing a lawsuit against the borrower, resulting in a judicial order for the sheriff to conduct the sale of the property at auction. This is used in many states.
- Power of sale: This non-judicial process is allowed in many states and used if the mortgage has a power of sale clause. In this process, the mortgage company conducts the sale at auction without the involvement of the courts.
- Strict foreclosure: This is only permitted in a few states and is also a judicial foreclosure. The court will order that the ownership of the property is transferred back to the lender, instead of being sold at auction.
For example, if a borrower misses several loan payments, the lender may start the foreclosure process by sending a demand letter requiring payment. If the borrower does not cure the default, the lender will move forward with the foreclosure of the property.
The foreclosure sale is usually made by the county sheriff and involves selling the property at auction to the highest bidder. After the sale is confirmed, the borrower may receive an eviction notice requiring them to vacate the property immediately.
A foreclosure sale will negatively impact the borrower's credit report and remain for seven years from the date of the first missed payment.
Overall, a foreclosure sale is a legal process used by lenders to recover money owed on a defaulted loan by selling the mortgaged property at auction or transferring it back to the lender.