There are two components to most real estate loans: a note and a mortgage. In residential real estate transactions, the note serves to prove the loan amount and that the borrower has agreed to make payments at an agreed-upon interest rate. By contrast, the mortgage is a security instrument that allows a lender to take back property in the event the terms of the loan are not honored. Most consumers don’t realize that It is the mortgage that actually gives a bank the right to foreclose. Without the mortgage, the bank can only look to the personal assets of the borrower, with the mortgage, the bank hedges risk by taking on property as collateral for repayment of the note. When a borrower cannot afford to keep up with their monthly mortgage payments, the bank will foreclose on the property in order to recoup the money they lent to the property owner. Foreclosure involves selling real estate to satisfy outstanding mortgage debt. Although laws vary greatly by state, generally speaking, there are two basic types of foreclosure practiced nationwide: power of sale foreclosure and judicial foreclosure. Power of sale foreclosure is a faster process than judicial foreclosure and usually involves a deed of trust. When a borrower finances the purchase of property, the deed is held in trust by a trustee who has authority to sell the property in the event that the borrower fails to make payments. A power of sale foreclosure can be accomplished in as little as 2-3 months and does not require court oversight ( although for power of sale foreclosure to be valid the borrower must be given notice of the proceedings). By contrast, many states require lenders to utilize judicial foreclosure in order to take back property from a borrower. Judicial foreclosure states require that a judge oversees the foreclosure process. In these jurisdictions, a foreclosure is initiated exactly as a civil lawsuit would be, by the lender filing a complaint and serving the borrower with a summons notifying them that foreclosure proceedings have been instituted against them. Because it involves litigation, judicial foreclosure gives borrowers the opportunity to conduct discovery, meaning they can require lenders to prove that they have the right to foreclose by producing certain documents such as a copy of a properly executed note, which in today’s securitized mortgage environment, can provide a significant advantage to borrowers. Depending on the extent of the litigation surrounding a foreclosure, judicial foreclosure can take a year or longer. As a practical matter, lenders nationwide are backlogged significantly due to the high rate of foreclosure and, even in a power of sale jurisdiction, foreclosure can take many months or even years to be accomplished. Many consumers who have surrendered homes in bankruptcy over the last few years, have reported that lenders are unwilling to foreclose on the property and instead are content to “sit on their lien” waiting to see if property values recover before foreclosing. Below, we have organized a library of articles, written by attorneys on the subject of foreclosure. Feel free to browse through the information. If you do not find what you’re looking for please submit a question to the QA forum. Thank you for visiting the National Bankruptcy Forum.

Surrendering House Chapter 7 Bankruptcy

What is the Difference Between Surrendering a Home and Foreclosure?

Last updated Aug. 30, 2017. What is the difference between surrendering a home in bankruptcy and losing a home to foreclosure? Many consumers are confused by the interplay between the two. When you file bankruptcy and surrender a home, you give the property back to the lender. When a lender forecloses on your home due to […]

Deficiency Judgment After Foreclosure Bankruptcy

Deficiency Judgment: After Foreclosure, Do I Owe Money?

Last updated April 13, 2017. A common misconception among consumers is that after foreclosure they will not owe their mortgage lender. Many homeowners who go through foreclosure are surprised to learn that they still owe money on their house, even though they no longer own it! Most mortgage lenders require borrowers to personally guarantee the […]

Bankruptcy and Foreclosure: The Consumer’s Overview

Last updated Sept. 21, 2017. OK, here’s the deal with bankruptcy and foreclosure. Despite what you may have heard, filing for bankruptcy does not necessarily permanently stop a lender from foreclosing on your home. Filing for bankruptcy will always temporarily stop the bank foreclosing on your home. This is true regardless of which chapter you […]