Procedural rules governing bank and government foreclosures
Foreclosure is governed by state law, and different states can observe different procedures.
Four foreclosure methods
Strict foreclosure:the lender, mortgagee, automatically becomes full owner of the property when a borrower, mortgagor,
Judicial foreclosure or public sale:court decides on title questions and approves each step of the foreclosure procedure.
Foreclosure by power of sale.
Foreclosure through the deed in lieu method.
Who keeps the title?
In some states, property owner or borrower transfers the mortgage interest to the lender as security under the mortgage
agreement. There is also mechanic's or materialmen's lien that exists until the builder gets paid by the developer for
materials and labor. Learn more how title search and title insurance works for you.
Steps in foreclosure procedures
Lender or claimant sends the borrower a summons or foreclosure complaint.
Borrower responds to prevent foreclosure and explains the problems at a hearing. Property owner must properly appear
and file responsive pleadings in the foreclosure action. Borrower can get the lawsuit dismissed if he or she makes the
entire payment due during court proceedings.
Borrower does not respond and court accepts a default. Court summarily enters judgment in favor of the lien holder
against the property owner. A judgment of foreclosure is entered. Lis pendens notice is issued. Lis pendens is filed by the
lien holder and contains information on type of foreclosure and description of the property. Borrower can still pay the full
amount and get his or her house back during this redemption period. Judicial sale of property
Judicial sale of property
If borrower does not pay or redeem the property within the redemption period, he or she loses the ownership. Title
examination is conducted to determine if there is any additional third party defendant.
Court must find that (a) obligations exist between the property owner and the lien holder, (b) the property owner is in
default of the performance of his obligations to the lien holder, and (c) the lien holder is entitled to assert his lien or
interest against the real estate.
Lender sells the real estate property at a public sale or auction and gets paid for the full loan amount. Balance, if any left,
goes to the borrower or previous owner. If the sale amount is less than the loan amount, borrower still owes such balance
to the lender. This amount is determined as a result of deficiency proceedings.
If the borrower has a right of redeem, sale notice indicates such right of redemption and the redemption value of the
As a final step, court transfers the deed to the purchaser or new owner after all taxes, sale-related expenses, and other
additional defendant are paid.