Several different types of foreclosure proceedings exist that you should be aware of. Each type has its own specific peculiarities. This causes confusion when attempting to make sense of the foreclosure process.
Deed in Lieu of Foreclosure
A Deed in Lieu of Foreclosure acts as a vehicle for avoiding the foreclosure itself. If you are the borrower, you basically surrender the deed of the property to the lender. The surrender of the deed then becomes full payment of the debt against the property. This is a fast and effective method to avoid foreclosure on the borrowers' credit report. However all equity will be lost in the transaction.
Statutory or Non-Judicial Foreclosure
With a Strict Foreclosure, the bank takes immediate possession of the defaulted property as soon as any breach of the loan contract or mortgage agreement takes place. The mortgage contact documents must specifically outline this in writing for it to occur. Strict Foreclosure is like a Deed in Lieu of Foreclosure; however, the borrower has no option here. The borrower is at the mercy of the lender. Strict Foreclosure only occurs in rare instances but is very quick and the lender has all the advantages.
Judicial Foreclosure
Judicial Foreclosure acts as a last resort when all other attempts have failed. The dispute between the borrower and the lender is taken to court. Then an officer for the court puts the property up for sale in order to pay off the outstanding loan. Judicial Foreclosures take a long time to conclude and normally result in a much lower sale price for the property then it is worth. However, the borrower may recoup some equity after the debt and all costs associated are paid in full - so all is not lost.
Statutory or Non-Judicial Foreclosure
This is somewhat like Judicial Foreclosure except the property is sold by the bank or other lender and the court officer does not get involved. This type of foreclosure is only possible if the wording in the contact of the loan specifically allows for it. This proceeding is much quicker than a Judicial Foreclosure and has the same benefits and/or drawbacks.
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