Foreclosure

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For the concept of 'foreclosure' in the psychoanalytic thought of Jacques Lacan, see
Foreclosure (psychoanalysis).

House in Salinas, California under foreclosure, following the popping of the U.S. real
estate bubble.
Foreclosure is a legal process in which a lender attempts to recover the balance of a
loan from a borrower, who has stopped making payments to the lender, by forcing the
sale of the asset used as the collateral for the loan.[1]
Formally, a mortgage lender (mortgagee), or other lienholder, obtains a termination of a
mortgage borrower (mortgagor)'s equitable right of redemption, either by court order or
by operation of law (after following a specific statutory procedure).[2]
Usually a lender obtains a security interest from a borrower who mortgages or pledges
an asset like a house to secure the loan. If the borrower defaults and the lender tries to
repossess the property, courts of equity can grant the borrower the equitable right of
redemption if the borrower repays the debt. While this equitable right exists, it is a
cloud on title and the lender cannot be sure that they can successfully repossess the
property.[3] Therefore, through the process of foreclosure, the lender seeks to foreclose
(in plain English, immediately terminate) the equitable right of redemption and take
both legal and equitable title to the property in fee simple.[4] Other lien holders can also
foreclose the owner's right of redemption for other debts, such as for overdue taxes,
unpaid contractors' bills or overdue homeowners' association dues or assessments.
The foreclosure process as applied to residential mortgage loans is a bank or other
secured creditor selling or repossessing a parcel of real property after the owner has
failed to comply with an agreement between the lender and borrower called a
"mortgage" or "deed of trust." Commonly, the violation of the mortgage is a default in
payment of a promissory note, secured by a lien on the property. When the process is
complete, the lender can sell the property and keep the proceeds to pay off its mortgage
and any legal costs, and it is typically said that "the lender has foreclosed its mortgage
or lien." If the promissory note was made with a recourse clause then if the sale does not
bring enough to pay the existing balance of principal and fees the mortgagee can file a
claim for a deficiency judgment. In many states in the United States, items included to

calculate the amount of a deficiency judgment include the loan principal, accrued
interest and attorney fees less the amount the lender bid at the foreclosure sale.[5]

Contents
[hide]

1 Types of foreclosure
o 1.1 Judicial foreclosure
o 1.2 Nonjudicial foreclosure
o 1.3 Strict foreclosure

2 Acceleration

3 Process
o 3.1 Strict foreclosure/judicial foreclosure
o 3.2 Nonjudicial foreclosure
o 3.3 Defenses
o 3.4 Equitable foreclosure
o 3.5 Title search and tax lien issues

4 Contesting a foreclosure

5 Foreclosure auction

6 Further borrower's obligations

7 Renegotiation alternative

8 Experiences of households post-foreclosure

9 Affected demographics

10 Recent trends

11 Impact of foreclosure

12 Australia and New Zealand

13 Ireland

14 People's Republic of China

o 14.1 Mortgages and foreclosure

15 Philippines

16 Spain

17 South Africa

18 Switzerland

19 United Kingdom

20 See also

21 References

22 Further reading

Types of foreclosure[edit]
This section does not cite any sources. Please help improve this section
by adding citations to reliable sources. Unsourced material may be
challenged and removed. (November 2013)
The mortgage holder can usually initiate foreclosure at a time specified in the mortgage
documents, typically some period of time after a default condition occurs. Within the
United States, Canada and many other countries, several types of foreclosure exist. In
the U.S., two of them namely, by judicial sale and by power of sale are widely used,
but other modes of foreclosure[6] are also possible in a few states.

Judicial foreclosure[edit]
Foreclosure by judicial sale, more commonly known as judicial foreclosure, which is
available in every state (and required in many), involves the sale of the mortgaged
property under the supervision of a court, with the proceeds going first to satisfy the
mortgage; then other lien holders; and, finally, the mortgagor/borrower if any proceeds
are left. Under this system, the lender initiates foreclosure by filing a lawsuit against the
borrower. As with all other legal actions, all parties must be notified of the foreclosure,
but notification requirements vary significantly from state to state. A judicial decision is
announced after the exchange of pleadings at a (usually short) hearing in a state or local
court. In some rather rare instances, foreclosures are filed in federal courts.

Nonjudicial foreclosure[edit]

Foreclosure by power of sale, also known as nonjudicial foreclosure, is authorized by

many states if a power of sale clause is included in the mortgage or if a deed of trust
with such a clause was used, instead of an actual mortgage. In some states, like
California and Texas, nearly all so-called mortgages are actually deeds of trust. This
process involves the sale of the property by the mortgage holder without court
supervision (as elaborated upon below). This process is generally much faster and
cheaper than foreclosure by judicial sale. As in judicial sale, the mortgage holder and
other lien holders are respectively first and second claimants to the proceeds from the
sale.

Strict foreclosure[edit]
Other types of foreclosure are considered minor because of their limited availability.
Under strict foreclosure, which is available in a few states including Connecticut, New
Hampshire and Vermont, suit is brought by the mortgagee and if successful, a court
orders the defaulted mortgagor to pay the mortgage within a specified period of time.
Should the mortgagor fail to do so, the mortgage holder gains the title to the property
with no obligation to sell it. This type of foreclosure is generally available only when
the value of the property is less than the debt ("under water"). Historically, strict
foreclosure was the original method of foreclosure.

Acceleration[edit]
Acceleration is a clause that is usually found in Sections 16, 17, or 18 of a mortgage.
Not all accelerations are the same for each mortgage, as it depends on the terms and
conditions between lender and obligated mortgagor(s). When a term in the mortgage has
been broken, the acceleration clause goes into effect. It can declare the entire payable
debt to the Lender if the Borrower(s) were to transfer the title at a future date to a
purchaser. The clause in the mortgage also instructs that a notice of acceleration must be
served to the obligated mortgagor(s) who signed the Note. Each mortgage gives a time
period for the debtor(s) to cure their loan. The most common time periods allot to
debtor(s) is usually 30 days, but for commercial property it can be 10 days. The notice
of acceleration is called a Demand and/or Breach Letter. In the letter it informs the
Borrower(s) that they have 10 or 30 days from the date on the letter to reinstate their
loan. Demand/Breach letters are sent out by Certified and Regular mail to all notable
addresses of the Borrower(s). Also in the acceleration of the mortgage the lender must
provide a payoff quote that is estimated 30 days from the date of the letter. This letter is
called an FDCPA (Fair Debt Collections Practices Acts) letter and/or Initial
Communication Letter. Once the Borrower(s) receives the two letters providing a time
period to reinstate or payoff their loan the lender must wait until that time expires in to
take further action. When the 10 or 30 days have passed that means that the acceleration
has expired and the Lender can move forward with foreclosing on the property.
The Lender will also include any unpaid property taxes and delinquent payments in this
amount, so if the borrower does not have significant equity they will owe more than the
original amount of the mortgage.
Lenders may also accelerate a loan if there is a transfer clause, obligating the mortgagor
to notify the lender of any transfer, whether; a lease-option, lease-hold of 3 years or
more, land contracts, agreement for deed, transfer of title or interest in the property.

The vast majority (but not all) of mortgages today have acceleration clauses. The holder
of a mortgage without this clause has only two options: either to wait until all of the
payments come due or convince a court to compel a sale of some parts of the property
in lieu of the past due payments. Alternatively, the court may order the property sold
subject to the mortgage, with the proceeds from the sale going to the payments owed the
mortgage holder.

Process[edit]
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).[citation needed]

Strict foreclosure/judicial foreclosure[edit]

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 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 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 foreclosure[edit]
Historically, the vast majority of judicial foreclosures have been unopposed, since most
defaulting borrowers have no money with which 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]
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]

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 referred to as "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 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. In May 2012, the U.S. Supreme Court, resolved uncertainty
surrounding a secured creditor's right to credit bid in a sale under a Chapter 11
bankruptcy plan.[7] In RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 566 U.S.
______ (2012), the Court found it was obligated to interpret the bankruptcy code
clearly and predictably using well established principles of statutory construction
resolving the lingering uncertainties related to credit bidding under a chapter 11 plan
and upholding secured creditors rights.[8]
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[edit]
In some 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 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.[9] In June 2008, a Colorado district court
judge also dismissed a foreclosure action because of failure of the alleged lender to
prove they were the real party in interest.[10][11]
In contrast, in six federal judicial circuits and the majority of nonjudicial foreclosure
states (like California), due process has already been judicially determined to be a
frivolous defense.[12] The entire point of nonjudicial foreclosure is that there is no state
actor (i.e., a court) involved.[13] 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. The difficulty in finding such a
lender in nonjudicial foreclosure states is not the state's problem. (Obviously, any
rational lender in such a state would be skeptical of the creditworthiness of a person
expressly requesting such protection.) 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.[13]
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.[14]

Equitable foreclosure[edit]
"Strict foreclosure" is an equitable right available in some states. The strict foreclosure
period arises after the foreclosure sale has taken place and is available to the foreclosure
sale purchaser. The foreclosure sale purchaser must petition a court for a decree that
cuts off any junior lien holder's rights to redeem 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
at common law in England's courts of equity as a response to the development of the
equity of redemption.

Title search and tax lien issues[edit]

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 liens on the property,
whether by 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 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.
[15][16]

Contesting a foreclosure[edit]

Because the right of redemption is an equitable right, foreclosure is an action in equity.

To keep the right of redemption, the debtor may be able to petition the court for an
injunction. If repossession is imminent the debtor must seek a temporary restraining
order. However, the debtor may have to post a bond in the amount of the debt. This
protects the creditor if the attempt to stop foreclosure is simply an attempt to escape the
debt.
A debtor may also challenge the validity of the debt in a claim against the bank to stop
the foreclosure and sue for damages. In a foreclosure proceeding, the lender also bears
the burden of proving they have standing to foreclose.
Several U.S. states, including California,[17] Georgia,[18] and Texas[19] impose a "tender"
condition precedent upon borrowers seeking to challenge a wrongful foreclosure, which
is rooted in the maxim of equity that "he who seeks equity must first do equity," as well
as the common law rule that the party seeking rescission of a contract must first return
all benefits received under the contract.
In other words, to challenge an allegedly wrongful foreclosure, the borrower must make
legal tender of the entire remaining balance of the debt prior to the foreclosure sale.
California has one of the strictest forms of this rule, in that the funds must be received
by the lender before the sale. One tender attempt was held inadequate when the check
arrived via FedEx on a Monday, three days after the foreclosure sale had already
occurred on Friday.[20]
At least one textbook has attacked the paradox inherent in the tender rulenamely, if
the borrower actually had enough cash to promptly pay the entire balance, they would
have already paid it off and the lender would not be trying to foreclose upon them in the
first place[21]but it continues to be the law in the aforementioned states.
Occasionally, borrowers have raised enough cash at the last minute (usually through
desperate fire sales of other unencumbered assets) to offer good tender and have thereby
avoided foreclosure or at least preserved their rights to challenge the foreclosure
process. Courts have been unsympathetic to attempts by such borrowers to recover fire
sale losses from foreclosing lenders.[22]
One noteworthy court case questions the legality of the foreclosure practice is
sometimes cited as proof of various claims regarding lending. In the case First National
Bank of Montgomery v. Jerome Daly, Jerome Daly claimed that the bank didn't offer a
legal form of consideration because the money loaned to him was created upon signing
of the loan contract. The myth reports that Daly won, and the result was that he did not
have to repay the loan, and the bank could not repossess his property. In fact, the
"ruling" (widely referred to as the "Credit River Decision") was ruled a nullity by the
courts.[23]
In a recent New York case, the Court rejected a lender's attempt to foreclose on
summary judgment because the lender failed to submit proper affidavits and papers in
support of its foreclosure action and also, the papers and affidavits that were submitted
were not prepared in the ordinary course of business.[24]

Foreclosure auction[edit]

When the entity (in the US, typically a county sheriff or designee) auctions a foreclosed
property the noteholder may set the starting price as the remaining balance on the
mortgage loan. However, there are a number of issues that affect how pricing for
properties is considered, including bankruptcy rulings. In a weak market the foreclosing
party may set the starting price at a lower amount if it believes the real estate securing
the loan is worth less than the remaining principal of the loan. Time from notice of
foreclosures to actual property sales is dependent on many factors, such as the method
of foreclosure (judicial or non-judicial).
In the case where the remaining mortgage balance is higher than the actual home value,
the foreclosing party is unlikely to attract auction bids at this price level. A house that
has gone through a foreclosure auction and failed to attract any acceptable bids may
remain the property of the owner of the mortgage. That inventory is called REO (real
estate owned). In these situations the owner/servicer tries to sell it through standard real
estate channels.

Further borrower's obligations[edit]

The mortgagor may be required to pay for Private Mortgage Insurance, or PMI, for as
long as the principal of his or her primary mortgage is above 80% of the value of his or
her property. In most situations, insurance requirements are sufficient to guarantee that
the lender gets some pre-defined percentage of the loan value back, either from
foreclosure auction proceeds or from PMI or a combination thereof.
Nevertheless, in an illiquid real estate market or following a significant drop in real
estate prices, it may happen that the property being foreclosed is sold for less than the
remaining balance on the primary mortgage loan, and there may be no insurance to
cover the loss. In this case, the court overseeing the foreclosure process may enter a
deficiency judgment against the mortgagor. Deficiency judgments can be used to place a
lien on the borrower's other property that obligates the mortgagor to repay the
difference. It gives lender a legal right to collect the remainder of debt out of
mortgagor's other assets (if any).
There are exceptions to this rule, however. If the mortgage is a non-recourse debt
(which is often the case with owner-occupied residential mortgages in the U.S.), lender
may not go after borrower's assets to recoup his losses. Lender's ability to pursue
deficiency judgment may be restricted by state laws. In California and some other
states, original mortgages (the ones taken out at the time of purchase) are typically nonrecourse loans; however, refinanced loans and home equity lines of credit aren't.
If the lender chooses not to pursue deficiency judgmentor can't because the mortgage
is non-recourseand writes off the loss, the borrower may have to pay income taxes on
the unrepaid amount if it can be considered "forgiven debt." However, recent changes in
tax laws may change the way these amounts are reported. {(Citation needed|
date=October 2009)}
Any liens resulting from other loans taken out against the property being foreclosed
(second mortgages, HELOCs) are "wiped out" by foreclosure, but the borrower is still
obligated to pay those loans off if they are not paid out of the foreclosure auction's
proceeds.

Renegotiation alternative[edit]
In the wake of the United States housing bubble and the subsequent subprime mortgage
crisis there has been increased interest in renegotiation or modification of the mortgage
loans rather than foreclosure, and some commentators have speculated that the crisis
was exacerbated by the "unwillingness of lenders to renegotiate mortgages".[25] Several
policies, including the U.S. Treasury sponsored Hope Now initiative and the 2009
"Making Home Affordable" plan have offered incentives to renegotiate mortgages.
Renegotiations can include lowering the principal due or temporarily reducing the
interest rate. A 2009 study by Federal Reserve economists found that even using a broad
definition of renegotiation, only 3% of "seriously delinquent borrowers" received a
modification. The leading theory attributes the lack of renegotiation to securitization
and a large number of claimants with security interest in the mortgage. There is some
support behind this theory, but an analysis of the data found that renegotiation rates
were similar among unsecuritized and securitized mortgages. The authors of the
analysis argue that banks don't typically renegotiate because they expect to make more
money with a foreclosure, as renegotiation imposes "self-cure" and "redefault" risks.[25]
Government supported programs such as Home Affordable Refinance Program (HARP)
may provide homeowners the ability to refinance their mortgages if they are unable to
obtain a traditional refinance due to their declined home value.[26]
A dual-tracking process appeared to be in use by many lenders, however, where the
lender would simultaneously talk to the borrower about a "loan modification", but also
move ahead with a foreclosure sale of the borrower's property. Borrowers were heard to
complain that they were misled by these practices and would often be "surprised" that
their home had been sold at foreclosure auction, as they believed they were in a "loan
modification process". California has enacted legislation to eliminate this type of "dualtracking" - The Homeowner Bill of Rights - AB 278, SB 900, That went into effect on
January 1, 2013.[27]

Experiences of households post-foreclosure[edit]

A 2011 research paper by the Federal Reserve Board, The Post-Foreclosure Experience
of U.S. Households, used credit reports from more than 37 million individuals between
1999 to 2010 to measure post-foreclosure behavior, especially in regard to future
borrowing and housing consumption. The study found that: 1) On average 23% of
people experiencing foreclosure had moved within a year of the foreclosure process
starting. In the same time, a control group (not facing foreclosure) had only a 12%
migration rate; 2) Only 30% of post-foreclosure borrowers moved to neighborhoods
with median income at least 25% lower than their previous neighborhood; 3) The
majority of post-foreclosure migrants do not end up in substantially less-desirable
neighborhoods or more crowded living conditions; 4) There was no significant
difference in household size between the post-foreclosure and control groups. However,
only 17% of the post-foreclosure individuals had the same number and composition of
household members after a foreclosure than before. By comparison, the control group
maintained the same household companions in 46% of cases; and, 5) Only about 20% of
post-foreclosure individuals chose to live in households where one person maintained a
mortgage. Overall, the authors conclude that it is difficult to say whether this small
effect is because the shock that leads to foreclosure is not long-lasting, because the

credit constraints imposed by having a foreclosure on ones credit report are not large,
or because housing services are more inelastic than other forms of consumption."[28]

Affected demographics[edit]
Recent housing studies indicate that minority households disproportionately experience
foreclosures. Other overly represented groups include African Americans, renter
households, households with children, and foreign-born homeowners. For example,
statistics show that African American buyers are 3.3 times more likely than white buyers
to be in foreclosure, while Latino and Asian buyers are 2.5 and 1.6 times more likely,
respectively. As another statistical example, over 60 per cent of the foreclosures that
occurred in New York City in 2007 involved rental properties. Twenty percent of the
foreclosures nationwide were from rental properties. One reason for this is that the
majority of these people have borrowed with risky subprime loans. There is a major
lack of research done in this area posing problems for three reasons. One, not being able
to describe who experiences foreclosure makes it challenging to develop policies and
programs that can prevent/reduce this trend for the future. Second, researchers cannot
tell the extent to which recent foreclosures have reversed the advances in
homeownership that some groups, historically lacking equal access, have made. Third,
research is focused too much on community-level effects even though it is the
individual households that are most strongly affected.[29] Many people cite their own or
their family members medical conditions as the primary reason for undergoing a
foreclosure. Many do not have health insurance and are unable to adequately provide for
their medical needs. This again points to the fact that foreclosures affects already
vulnerable populations.[30] Credit scores are greatly impacted after a foreclosure. The
average number of points reduced when you are 30 days late on your mortgage payment
is 40 - 110 points, 90 days late is 70 - 135 points, and a finalized foreclosure, short sale
or deed-in-lieu is 85 - 160 points.[31]

Recent trends[edit]
In 2009, the United States Congress tried to rescue the economy with a $700 billion
bailout for the financial industry; however, there was a growing consensus that the
deepening collapse of the housing market was at the heart of the countrys acute
economic downturn. After spending billions of dollars rescuing financial institutions
only to see the economy spiral even deeper into crisis, both liberal and conservative
economists and lawmakers pushed to redirect an economic stimulus bill to what they
saw as the core problem: the housing market. But beneath the consensus over helping
the housing market, there were huge differences over who should benefit under the
competing plans. Democrats wanted to aim money directly at people in the greatest
distress; and Republicans wanted to aim money at almost all homebuyers, on the theory
that a rising tide would eventually lift all boats.[32]
In 2010, there was a 14% increase in the number of homes receiving a default notice
between July and September. In that year one in every 45 homes received a foreclosure
filing and the problem has become more widespread with the increasing rates of
unemployment across the nation. Banks have become extremely aggressive without
much patience for those who have fallen behind on their mortgage payments, and there
are more families entering the foreclosure process sooner than ever. This year, 2011,

banks are on track to repossess over 800,000 homes.[33] In 2010, the highest rates of
foreclosure filings were in Las Vegas, Nevada; Fort Myers, Florida; Modesto,
California; Scottsdale, Arizona; Miami, Florida; and Ontario, California. The
geographic diversity of these cities is made up for by the fact they these are all relatively
metropolitan areas. Big cities like Houston, Texas saw a 26% increase in 2010, 23% in
Seattle, Washington and 21% in Atlanta, Georgia. On the opposite end of the spectrum,
the cities with the lowest rates of foreclosure were Rome, NY; South Burlington, VT;
Charleston, WV; Bryan, TX; and Tuscaloosa, AL.[34] Not surprisingly, these areas had
some of the lowest nationwide rates of unemployment, helping to further demonstrate
this correlation. A quote from RealtyTrac CEO James Saccacio summarizes the recent
trends:
Foreclosure floodwaters receded somewhat in 2010 in the nations hardest-hit housing
markets. Even so, foreclosure levels remained five to 10 times higher than historic
norms in most of those hard-hit markets, where deep fault-lines of risk remain and could
potentially trigger more waves of foreclosure activity in 2011 and beyond.
[29]

As per the foreclosure data report of RealtyTrac for Jan 2014, 1 in every 1,058 homes in
U.S received a foreclosure filing. This figure falls in the higher spectrum of foreclosure
frequency. As of August 2014, the foreclosure rate was 33.7%, 1.7% up from the last
year. The rise in foreclosure activity has been most significant in New York and New
Jersey, the two most densely populated areas in U.S. Closely following them is Florida.
[35]

Impact of foreclosure[edit]

Notices accumulate on the door and window of a foreclosed, unoccupied house

The impact of foreclosure goes beyond just homeowners but also expands to towns and
neighborhoods as a whole. Cities with high foreclosure rates often experience more
crime and thefts with abandoned houses being broken in to, garbage collecting on
lawns, and an increase in prostitution.[36] Foreclosures also impact neighboring housing
sales on two levelsspace and time. For any given time frame, foreclosures have a
greater negative impact when they are closer to the property attempting to be sold. The
conventional view suggested is that the increase in foreclosures will cause declines in
the sales value of neighboring properties, which, in turn, will lead to an extension of the
housing crisis.[37] Another significant impact from increased foreclosure rates is the
effect it has on school mobility of children. In general, research suggests that switching
schools is damaging for children, although this does significantly depend on the quality
origin and destination schools. A study done in New York City revealed that students

who changed schools most often entered a school with lower, on average, test scores
and overall school performance. The effect of these moves on academic performance for
individual students is something needing further research.[38] Foreclosures also have an
emotional and physical effect on people. In one particular study of 250 recruited
participants who had experienced foreclosure, 36.7% met screening criteria for major
depression.[30]

Australia and New Zealand[edit]

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Australia and New Zealand: Foreclosure has been prohibited by law in New Zealand for
well over a century. Instead the mortgagee realises the security through sale, the
exercise of the power of sale also being regulated by statute.
In both of these countries statutory reform has altered the manner in which real property
dealings are conducted. What is termed a "mortgage" is a legal interest that is registered
against the fee simple title of the property. Since in both countries, the Torrens title
system of land registration is used, being registered as proprietor or as a mortgagee
creates an indefeasible interest (unless the acquisition of the registration was by land
transfer fraud). The mortgagee therefore never holds the fee simple, and there is a
statutory process for initiating and conducting a mortgagee sale in the event that the
mortgagor defaults. In New Zealand, as in England, say, the land title database is now
electronic so there are no paper "title documents".

Ireland[edit]
Ireland: Foreclosure has been abolished by the Land and Conveyancing Reform Act
2009[39] but Chapter 4 of Part 9 of the National Asset Management Agency Act 2009
provides for vesting orders that are equivalent to foreclosure but may only be used by
NAMA.[40]

People's Republic of China[edit]

Foreclosure in the People's Republic of China takes place as a form of debt enforcement
proceedings under strict judicial foreclosure, which is only allowed by law of guarantee
and law of property right.
China amended the Constitution of the Peoples's Republic of China (adopted April 12,
1988), to allow transfer of land rights, from "granted land rights" to "allocated land
rights" thus paving the way for private land ownership, allowing for the renting, leasing,
and mortgage of land. The 1990 Regulations on Granting Land Use Rights dealt further
with this followed by the Urban Real Estate Law (adopted July 5, 1994),[41] the "Security
Law of the People's Republic of China" (adopted June 30, 1995), and then the "Urban
Mortgage Measures" (issued May 9, 1997)[42] resulting in land privatization and
mortgage lending practices.

Mortgages and foreclosure[edit]

Chinese law and mortgage practices have progressed with safeguards to prevent
foreclosures as much as possible. These include mandatory secondary security,
rescission (Chinese Contract Law), and maintaining accounts at the lending bank to
cover any defaults without prior notice to the borrower.[43] A mortgagee may sue on a
note without foreclosing, obtain a general judgment, and collect that judgment against
other property of the mortgagor, without foreclosing. When all other avenues have
failed a lender may seek a judgement of foreclosure. Under the "Civil Procedure Law",
foreclosures should be finalized in a six-month time frame but this is dependent on
several things including if the mortgager applies to the court for execution of the
judgment.[44] Mortgages are formally foreclosed at auction by a licensed auction
specialist.[45]

Philippines[edit]
Philippines: There are two modes of foreclosure in the Philippines. A mortgagee may
foreclose either judicially or extrajudicially, as governed by Rule 68 of the 1997
Revised Rules of Civil Procedure and Act. No. 3135, respectively. A judicial foreclosure
is done by filing a complaint in the Regional Trial Court of the place where the property
is located.[46] The judge renders judgment, ordering the mortgagor to pay the debt within
a period of 90120 days. If the debt is not paid within the said period, a foreclosure sale
satisfies the judgment.[47] In an extrajudicial foreclosure, the mortgagee need not initiate
an action in court but may simply file an application before the Clerk of Court to secure
attendance of the Sheriff who conducts the public sale.[48] This is done pursuant to a
power of sale. Note that these two modes specifically apply to real estate mortgages.
Foreclosure of chattel mortgages (mortgage of movable property) are governed by Sec.
14 of Act No. 1506, which gives the mortgagee the right to sell the chattel at a public
sale. It has also been held that as regards chattel mortgages, the law does not prohibit
that the foreclosure sale be done privately if it is agreed upon by the parties.[49]

Spain[edit]
Spain: Unlike in the United States, where a foreclosure means the end of the line, the
foreclosure hearing in Spain is just the beginning of the homeowners troubles. They
will have to work for the bank for many years and will be unable to ever own anything
even a car. Spanish mortgage holders are responsible for the full amount of the loan
to the bank in addition to penalty interest charges, and court fees. Much of this can be
attributed to Spain having the highest unemployment rate in the euro zone. Unlike in
the US, bankruptcy is not an adequate solution since mortgage debt is specifically
excluded. Unlike other European countries, you cannot go to the courts for any sort of
debt relief. There has been much contention over these policies in the Spanish
Parliament but the government is convinced that keeping these policies will prevent
Spanish banks from ever experiencing something similar to the US mayhem.[50] With
repossessed real estate properties on their books worth about 100 billion the banks in
Spain are eager to get rid of foreclosures.[51]

South Africa[edit]

For a developing country, there is a high rate of foreclosures in South Africa[citation needed]
because of the privatisation of housing delivery.[neutrality is disputed] One of the biggest opponents
of foreclosures is the Western Cape Anti-Eviction Campaign which sees foreclosures as
unconstitutional and a particular burden on vulnerable poor populations.[52][53][undue weight? discuss]

Switzerland[edit]
Switzerland: Foreclosure takes place as a form of debt enforcement which is served by
the overlord of debt (currently Lord Overton Sheraton) proceedings under Swiss
insolvency law.

United Kingdom[edit]
United Kingdom: Foreclosure is a little used remedy which vests the property in the
mortgagee with the mortgagor having no right to any surplus from the sale. Because this
remedy can be harsh, courts almost never allow it. Instead, they usually grant an order
for possession and an order for sale, which mitigates some of the harshness of the
repossession by allowing the sale.

See also[edit]

Deed in lieu of foreclosure

Drive-by inspection

Equity stripping

Eviction

Financial crisis of 20072010

Forbearance

Home Affordable Modification Program (HAMP)

Home Affordable Refinance Program (HARP)

HUD auction

Loss mitigation

Occupy Homes

Repossession

Real estate trends

Short sale (real estate)

Strategic default

Tax taking - Tax Sales, Tax Auctions, Tax Foreclosures

Vacant property

2010 United States foreclosure crisis