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Foreclosure law

If you are in foreclosure, facing foreclosure, or just falling behing on mortgage payments, it's crucial that you understand the foreclosure process -- its procedures, your defenses, ways to avoid foreclosure, and consequences after foreclosure.

Start here to learn the basics -- what foreclosure is how it generally works, and what your options are for avoiding foreclosure. You will also find links to other topics that are crucial to understanding foreclosure, such as the timeline of the foreclosure process, deficiency judgments after foreclosure, and more.

If you stop making your mortgage payments, you will likely lose your home to foreclosure. Foreclosure is the legal process that allows the owner of your home loan to sell your home to satisfy the debt that you owe. Read on to get an overview of the general steps in foreclosure, what happens to any deficiency (the difference between the foreclosure sale price and the amount you owe) after a foreclosure sale, and what defenses might be available to you in a foreclosure.

Purchasing real estate usually involves a large sum of money and it is uncommon for a buyer to pay the entire purchase price in cash. Instead, a purchaser typically makes a down payment in cash and arranges for a loan to cover the balance of the purchase price.Financing the loan involves two legal instruments: a promissory note and a mortgage (or deed of trust). An endorsement transfers ownership of the note. Promissory notes are transferrable. When a loan changes hands, the promissory note is endorsed (signed over) to the new owner of the loan.

A promissory note is the document that contains your unconditional promise to repay the amount you borrowed (an IOU). The note creates a debt for which you are personally liable, meaning you are responsible to pay the balance that is due and owing on the note.

A mortgage (or deed of trust in some states) is a legal document that pledges a piece of real property as security for the debt created by a promissory note. This document creates a lien on the property when it is recorded in the land records. (Learn more about the difference between a mortgage and a promissory note.)

An assignment transfers ownership of the mortgage/deed of trust. When a loan is transferred from one party to another, that transfer must be documented and recorded in the land records. The document used to transfer a mortgage or deed of trust is called an assignment.

If you fall behind in payments (called "default"), a foreclosure is the procedure by which the lender or investor forces the sale of your property so that it can get repaid for the debt. Foreclosure works differently in different states. There are two types of foreclosure: judicial and nonjudicial. Judicial foreclosure requires the lender to go through the court system to take back ownership of the property. In a nonjudicial foreclosure, the lender follows a state-specific foreclosure process, but there is no court supervision. Each state typically uses one or the other of these procedures. With a few exceptions, mortgages can only be foreclosed in court, while deeds of trust can be foreclosed without going through court. With both judicial and nonjudicial foreclosures, the foreclosing party must typically mail you a notice telling you that foreclosure proceedings will start if you don't get caught up in payments. The notice generally provides 30 days for you to pay the past-due amounts otherwise the foreclosure will begin. In a judicial foreclosure, the foreclosing party starts the foreclosure by filing a lawsuit in state court as a plaintiff. You’ll receive a copy of the complaint (sometimes called a petition) to foreclose and get a certain number of days to respond to the lawsuit (for example, 30 days). If you don't respond to the lawsuit, the court will grant a judgment of foreclosure in favor of the plaintiff and set a sale date.