Foreclosure

==Process==
The process of foreclosure can be rapid or lengthy and varies from state to state. Other options such as [[refinancing]], a short sale, alternate financing, temporary arrangements with the lender, or even [[bankruptcy]] may present homeowners with ways to avoid foreclosure. Websites which can connect individual borrowers and homeowners to lenders are increasingly offered as mechanisms to bypass traditional lenders while meeting payment obligations for mortgage providers. Although there are slight differences between the states, the foreclosure process generally follows a timeline beginning with initial missed payments, moving to a sale being scheduled and finally a redemption period (if available).<ref>{{Cite web|title=Foreclosure Timeline -|url=https://capitalareaforeclosurenetwork.org/foreclosure-process/|access-date=2020-09-27|website=Capital Area Foreclosure Network|publisher=capitalareaforeclosurenetwork.org|language=en-US}}</ref>

===Strict and judicial===
In the [[United States]], there are two types of foreclosure in most states described by [[common law]]. Using a "[[deed in lieu of foreclosure]]," or "[[strict foreclosure]]", the noteholder claims the [[title (property)|title]] and possession of the property back in full satisfaction of a debt, usually on contract.

In the proceeding simply known as foreclosure (or, perhaps, distinguished as "judicial foreclosure"), the lender must sue the defaulting borrower in state court. Upon final judgment (usually [[summary judgment]]) in the lender's favor, the property is subject to [[auction]] by the county [[sheriff]] or some other officer of the court. Many states require this sort of proceeding in some or all cases of foreclosure to protect any [[ownership equity|equity]] the debtor may have in the property, in case the value of the debt being foreclosed on is substantially less than the market value of the real property; this also discourages a strategic foreclosure by a lender who wants to obtain the property. In this foreclosure, the sheriff then issues a deed to the winning bidder at auction. Banks and other institutional lenders may bid in the amount of the owed debt at the sale but there are a number of other factors that may influence the bid, and if no other buyers step forward the lender receives title to the real property in return.

===Nonjudicial===
Historically, the vast majority of judicial foreclosures have been unopposed, since most defaulting borrowers have no money to hire counsel. Therefore, the U.S. financial services industry has lobbied since the mid-19th century for faster foreclosure procedures that would not clog up state courts with uncontested cases, and would lower the cost of credit (because it must always have the cost of recovering collateral built-in).{{Citation needed|date=November 2011}} Lenders have also argued that taking foreclosures out of the courts is actually kinder and less traumatic to defaulting borrowers, as it avoids the ''[[in terrorem]]'' effects of being sued.{{Citation needed|date=November 2011}}

In response, a slight majority of U.S. states have adopted nonjudicial foreclosure procedures in which the mortgagee (or more commonly the mortgagee's servicer's attorney, designated agent, or trustee) gives the debtor a notice of default (NOD) and the mortgagee's intent to sell the real property in a form prescribed by state [[statute]]; the NOD in some states must also be recorded against the property. This type of foreclosure is commonly called "statutory" or "nonjudicial" foreclosure, as opposed to "judicial", because the mortgagee does not need to file an actual lawsuit to initiate the foreclosure. A few states impose additional procedural requirements such as having documents stamped by a court clerk; Colorado requires the use of a county "public trustee," a government official, rather than a private trustee specializing in carrying out foreclosures. However, in most states, the ''only'' government official involved in a nonjudicial foreclosure is the county recorder, who merely records any pre-sale notices and the [[Trust deed (real estate)#Power of sale and trustee's sale|trustee's deed upon sale]].

In this "power-of-sale" type of foreclosure, if the debtor fails to cure the default, or use other lawful means (such as filing for [[bankruptcy]] to temporarily stay the foreclosure) to stop the sale, the mortgagee or its representative conduct a [[public auction]] in a manner similar to the sheriff's auction. Notably, the lender ''itself'' can bid for the property at the auction, and is the ''only'' bidder that can make a "credit bid" (a bid based on the outstanding debt itself) while all other bidders must be able to immediately (or within a very short period of time) present the auctioneer with cash or a cash equivalent like a [[cashier's check]]. 

The highest bidder at the auction becomes the owner of the real property, free and clear of interest of the former owner, but possibly encumbered by liens superior to the foreclosed mortgage (e.g., a senior mortgage, unpaid property taxes, weed/demolition liens). Further legal action, such as an [[eviction]], may be necessary to obtain possession of the premises if the former occupant fails to voluntarily vacate.

===Defenses===
In some US states, particularly those where only judicial foreclosure is available, the constitutional issue of [[due process]] has affected the ability of some lenders to foreclose. In Ohio, the US federal district court for the Northern District of Ohio has dismissed numerous foreclosure actions by lenders because of the inability of the alleged lender to prove that they are the real party in interest.<ref>[http://pubcit.typepad.com/clpblog/files/ForeclosureDismissal-Boyko.pdf JUDGE CHRISTOPHER A. BOYKO, “UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF OHIO (EASTERN DIVISION)”, filed 10-31-2007] {{webarchive|url=https://web.archive.org/web/20080909210140/http://pubcit.typepad.com/clpblog/files/ForeclosureDismissal-Boyko.pdf |date=2008-09-09 }} Retrieved July 12, 2008</ref> The same happened in a Colorado district court case in June 2008.<ref>{{cite news |first= Rhonda|last=Moore |title= The foreclosure fight is on |url=http://www.dcnewspress.com/site/tab11.cfm?newsid=19790666&BRD=2713&PAG=461&dept_id=559196&rfi=6|publisher=Douglas County News-Press|date=2008-06-20 |access-date=2008-07-12 }}</ref><ref>Block Colorado Foreclosure Blog www.blockcoloradoforeclosure.com</ref>

In contrast, in six [[United States courts of appeals|federal judicial circuits]] and the majority of nonjudicial foreclosure states (like California), due process has already been judicially determined to be a frivolous defense.<ref>''Apao v. Bank of New York'', 324 F.3d 1091 (9th Cir. 2003).</ref> The entire point of nonjudicial foreclosure is that there is no [[state actor]] (i.e., a court) involved.<ref name="garfinkle">''Garfinkle v. Superior Court'', [http://online.ceb.com/CalCases/C3/21C3d268.htm 21 Cal. 3d 268] (1978). This was a decision of the [[Supreme Court of California]] in favor of [[Wells Fargo]].</ref> The constitutional right of due process protects people only from violations of their civil rights by state actors, not private actors. (The involvement of the county clerk or recorder in recording the necessary documents has been held to be insufficient to invoke due process, since they are required by statute to record all documents presented that meet minimum formatting requirements and are denied the discretion to decide whether a particular foreclosure should proceed.)

A further rationale is that under the principle of [[freedom of contract]], if debtors wish to enjoy the additional protection of the formalities of judicial foreclosure, it is their burden to find a lender willing to provide a loan secured by a traditional conventional mortgage instead of a deed of trust with a power of sale. Courts have also rejected as frivolous the argument that the mere legislative act of authorizing or regulating the nonjudicial foreclosure process thereby transforms the process itself into state action.<ref name="garfinkle" />

In turn, since there is no right to due process in nonjudicial foreclosure, it has been held that it is irrelevant whether the borrower had actual notice (i.e., subjective awareness) of the foreclosure, as long as the foreclosure trustee performed the tasks prescribed by statute in an attempt to give notice.<ref>''I.E. Associates v. Safeco Title Ins. Co.'', [http://online.ceb.com/CalCases/C3/39C3d281.htm 39 Cal. 3d 281] {{webarchive|url=https://web.archive.org/web/20130906191724/http://online.ceb.com/CalCases/C3/39C3d281.htm |date=2013-09-06 }} (1985).</ref>

===Equitable foreclosure===
"Strict foreclosure" available in some states is an equitable right of the foreclosure sale purchaser. The purchaser must petition a court for a decree that cancels any junior lien holder's rights to the senior debt. If the junior lien holder fails to object within the judicially established time frame, his lien is canceled and the purchaser's title is cleared. This effect is the same as the strict foreclosure that occurred in English common law of equity as a response to the development of the [[equity of redemption]].

===Title search and tax lien issues===
In most jurisdictions, it is customary for the foreclosing lender to obtain a [[title search]] of the real property and to notify all other persons who may have [[lien]]s on the property, whether by [[Judgment (law)|judgment]], by [[contract]], or by [[statute]] or other law, so that they may appear and assert their interest in the foreclosure litigation. This is accomplished through the filing of a ''[[lis pendens]]'' as part of the lawsuit and recordation of it in order to provide public notice of the pendency of the foreclosure action. In all U.S. jurisdictions, a lender who conducts a foreclosure sale of real property that has a federal tax lien must give 25 days notice of the sale to the [[Internal Revenue Service]]. Failure to give notice results in the lien remaining attached to the real property after the sale. Therefore, it is imperative the lender search local federal tax liens, so that if parties to the foreclosure have a federal tax lien filed against them, the proper notice to the IRS is given. A detailed explanation by the IRS of the federal tax lien process can be found.<ref>[https://www.irs.gov/businesses/small/article/0,,id=108339,00.html Notice of Federal Tax Lien — Internal Revenue Service United States Department of the Treasury] {{webarchive|url=https://web.archive.org/web/20120818090618/http://www.irs.gov/businesses/small/article/0,,id=108339,00.html |date=2012-08-18 }} Retrieved 16 March 2008</ref><ref>lawsuit and recordation of it in order to provide public notice of the pendency of the foreclosure action. In all U.S. jurisdictions a lender who conducts a foreclosure sale of real property which is the subject of a federal tax lien must give 25 days' notice of the sale to the [[Internal Revenue Service]]: failure to give notice to the IRS results in the lien remaining attached to the real property after the sale. Therefore, it is imperative the lender search local federal tax liens so if parties involved in the foreclosure have a federal tax lien filed against them, the proper notice to the IRS is given. A detailed explanation by the IRS of the federal tax lien process can be found</ref>