The Legalities of Foreclosures and Why They Are of Utmost Importance

The foreclosure process is not governed by mystical elements. It is one that is governed by the law. As Judge Arthur Schack of the New York State Supreme Court puts it, “If you are going to take someone’s house, everything should be legal and correct.” Lenders cannot arbitrarily foreclose on homes.

Foreclosures are reviewed by judges against two standards – substantive and procedural. Each case should rest upon specific facts concerning the mortgage contract. It must also follow procedural requirements.

Foreclosures in a Nutshell

People often cannot afford the costs of buying a house upfront. For this reason, most turn to lenders for a mortgage loan. A property is foreclosed if the buyer does not make the mortgage payments. This way, the lender recovers the money lent to you by taking your property then selling it.

Of course, this kind of transaction is governed by rules.

More often than not, the rules are stated in the mortgage agreement. These may also be spelled out in a security agreement, promissory note or any other similar document. Contained within this document is a provision that allows the lender the right to use the property as collateral or for loan security.

Simply put, the borrower agrees to put the property up for sale if he fails to uphold his or her end of the agreement, which is to make monthly mortgage payments on time.

Judicial or Non-Judicial

There are two kinds of foreclosures in the United States: Judicial and non-judicial. Around half of all US states require lenders to prove a foreclosure in court. The others allow a lender to choose between a non-judicial or judicial process. Lenders often go for a non-judicial process because it proceeds faster and costs less. In this case, borrowers do not get a chance to challenge the foreclosure.

Nevertheless, all foreclosures should follow the law to the letter.

Attorneys general in all 50 states do not like how lenders are handling foreclosures. For instance, state attorneys from Nevada and Arizona filed lawsuits against the Bank of America for “widespread consumer fraud” as said by The Wall Street Journal. Meanwhile in New York, a foreclosure action was thrown out by a trial court in violation of “predatory lending laws.”

These are classic cases where people have started asking questions. More specifically, they ask if lenders follow laws pertaining to mortgages and foreclosures and if they do follow these.

All in the Papers

Mortgages and foreclosures are more technical than most people realize. Though sometimes irritating, paperwork is done for a good reason. It serves as a reference for both parties and as documentation for the whole process. Homeowners can use these as the basis of a legal defense against a foreclosure. On the other hand, lenders may use these as the basis for a foreclosure.

Either way, understanding the legalities of foreclosures is very important. Prior knowledge keeps a problem from ever coming up. If one does, you would be in a better position to deal with it. This is why reading the fine print before signing your mortgage agreement is a must.