Foreclosure Types

What Are the Types of Forclosure?

A Strategic Forclosure may involvee civil court proceedings.As a part of a Strategic Forclosure, the property owner will default on (quit) making their monthly mortgage payments. At some later time the mortgage holder will begin forclosure on the property. Depending upon which state you are in and the preference of the mortgage holder, the particular type of forclosure will vary.

One type of forclosure is the Judicial Sale. This strategic foreclosure option is available in each of the fifty United States. After notifying the borrower that s/he is in default, a court orders the sale of the property. In the case of a strategic forclosure, the proceeds will be less than what is owed on the mortgage(s). The funds received for the forclosed property go first to pay off the primary mortgage, then any other mortgages or lien holders, and (if anything is left) the (former) property owner. While forclosures may occasionally be handled by a Federal court, most remain in local or state courts.

Another type of forclosure is the Power of Sale, a method permitted only in some states. Under a Power of Sale forclosure, which often involve properties with a “mortgage” that is actually a Deed of Trust, the forclosure sale is performed by the mortgage holder. Since the sale falls outside of court supervision, it can be completed more quickly. Funds are distributed as per the Judicial Sale, and once again the mortgagor in s Strategic Forclosure would be very unlikely to receive anything.

The third, and oldest, type of forclosure is the Strict Forclosure. There is no sale of the property in a strict forclosure…after the mortgagor fails to make payments, the mortgagee simply gains the title to the property. This is generally not a problem for a person doing a Strategic Forclosure, since they will be under water and the value of the property will be less than the debt(s). The mortgagee may choose to auction, sell or hold onto the property.

Is Your Mortgage Underwater?