Foreclosure

In depth

Foreclosure is the formal mechanism for converting a defaulted mortgage into proceeds for the lender. Depending on state law, foreclosure can be judicial, requiring a court action, or non-judicial, conducted under a power of sale clause in a deed of trust. Misconception: foreclosure is not always the seller's preferred remedy in owner-finance deals; forfeiture is faster and cheaper where available. Practically, foreclosure provides the buyer with statutory protections including the right to reinstate, redeem, and receive surplus sale proceeds above the debt. Sellers in lien theory states rely on foreclosure for purchase money mortgages, while contract for deed sellers may be forced to foreclose if state law treats their contract as an equitable mortgage. Foreclosure timelines range from 90 days to over two years.