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A foreclosure filing occurs when a property lien holder files a notice to take possession of a property due to a debtor's failure to repay a debt. Filings are normally submitted at a courthouse and in many instances a judge has to approve or deny the request. When a foreclosure filing has been approved, the lien holder can make arrangements to assume ownership of the property or to sell it.
In many instances, foreclosure filings involve mortgages and other types of home loans. Such loans often have term times that last for up to 30 years and the borrower must make monthly payments until the debt has been repaid. A loan goes into default if the borrower fails to make a regularly scheduled payment, although in some nations borrowers have a grace period of 90 days or more before the lender can make a foreclosure filing. Depending on the precise loan agreement and local laws, the borrower may have the option of entering into a loan modification plan with the lender as an alternative to foreclosure. If the lender does foreclose, a sale is arranged and proceeds from the sale are applied to the outstanding debt.
Aside from lenders, other entities can place liens on real estate. The tax authorities in many nations have a legal right to place a lien on a home if the owner fails to settle property tax or even income tax. Creditors and service providers can also attempt to have a lien placed on real estate if the property owner fails to settle a past due debt. A single property may have several liens on it but in many nations any lien holder can make a foreclosure filing even if the property owner has not fallen behind on the primary mortgage.
Several places, including many locations in the United States have laws enabling a lien holder to make a foreclosure filing without having to go to court. In such instances, a mortgage contract includes a power of sale clause that gives the lien holder the right to assume control of the property as soon as the lien goes into default. Lien holders must file the foreclosure notice at the court house but a clerk rather than a judge must approve the filing and the property owner has no opportunity to contest the filing.
Due to inflationary pressures, property prices in many nations tend to rise over time. Lien holders can often generate a profit by selling a foreclosed home. During severe recessions, home prices sometimes fall in which case the value of a home may fall below the outstanding balance of the past due debt. In such situations, the lender may take a loss as a result of foreclosing on the home. Consequently, some lien holders look more favorably upon loan modification plans during times of recession.