Legal definition of foreclosure
Commercial Real Estate Legal Terminology


A foreclosure is a process initiated by a lender to satisfy unpaid debt by selling a house/apartment at an auction. Depending on the state laws, it can be either judicial or non-judicial.

Differences among states range from the notices that must be posted or mailed, redemption periods, and the scheduling and notices issued regarding the auctioning of the property.

A judicial foreclosure is a court proceeding that starts when a lender (the bank) files a lawsuit against the defaulted mortgagor to establish the amount of default and the right of a lender to sell the house/apartment and satisfy the outstanding debt. After a lawsuit has been filed, the lender files a "lis pendens" (lawsuit pending notice) with the county clerk's office. Simply speaking, a lis pendens notice let the public know that the owner of this property has an outstanding debt and the title is not clear.

Non-judicial foreclosure: Some states, such as Arizona, Colorado or California, use a Deed of Trust document instead of a Mortgage. There is a power of sale clause in the Deed of Trust that allows the trustee to sell the house without court involvement.

The title holder (trustor) deeds the property to a trustee which then holds the title in trust for the lender of the money (beneficiary). The trustor requests the title's return by re-conveyance from the trustee when the loan has been fully paid. If the trustor did not pay in time, the beneficiary can demand that the trustee initiate foreclosure on the property so that the lender can be reimbursed or can obtain title for the property.
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