The Housing and Urban Development Department (HUD) outlines three main types of foreclosures.
Judicial Foreclosure. This type of foreclosure is legal in all states, according to HUD. Some states may require this process. The lender files a suit in the legal system, and a letter demanding payment comes to the borrower via mail. If the borrower can’t pay within 30 days, then the local court or sheriff’s office sells the property to the highest bidder at an auction.
Power of Sale or Statutory Foreclosure. This comes into play in some states when a power of sale clause is included in the mortgage. After a homeowner has defaulted, the lender sends out a demand for payment letter, and if the payment is not made after a given waiting period, the mortgage company holds the auction. This can be a faster foreclosure process, although it still may be subject to judicial review.
Strict Foreclosure. In this last scenario, the lender files a lawsuit with the homeowner after the individual has defaulted. If payment is not made within a given time frame, then the property goes directly back to the mortgage holder. Only a few states allow this, and HUD states that “strict foreclosures take place only when the debt amount is greater than the value of the property.”
To find out which foreclosure scenarios may come into play for you, be sure to research the agreement that you signed with the lender as well as your state’s laws. Foreclosurelaw.org can help you find state specific laws.
HUD reminds you that you’ll have a very short time period to find a new place to live once your property is sold through an auction, so if foreclosure appears to be unavoidable, you may want to look into renting now before it hits.
