The procedure that the bank follows to take possession of property in the event of a default on a loan varies, depending on the state and area where you live and on any special circumstances that apply.
The three types of foreclosure are
- Non-judicial: This type of foreclosure is done by advertisement.
- Judicial: This type of foreclosure involves a court order.
- Forfeiture: This type of foreclosure is used if you purchased the home using a contract for deed or land contract, instead of with a mortgage.
In some states, a deed of trust may be used instead of a mortgage and may be treated as a mortgage for most purposes. With a deed of trust, three parties are involved: the trustor (borrower), the beneficiary (lender), and the trustee (an unbiased third party). If you default on the loan, the trustee can foreclose on the home without having to go through the courts. If you have something called a contract for deed, lease option, or something other than a mortgage to prove ownership of your home, the foreclosure process in your area is actually a forfeiture process. For simplicity, we refer to the party foreclosing on your home as “the bank,” even though it may be a creditor, lender, mortgage company, bank, or assignee (someone the loan has been signed over to). When exploring various solutions with your lender, make sure you’re speaking with someone who has the power to make a decision — this is usually the party who owns the loan, not the servicer who merely collects payments.
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