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A foreclosure order is a written declaration by a court, authorizing a lender to take possession of property that was offered as security for a loan of money. It is a remedy that a lender can request once the borrower has defaulted on his promise to make payments as required under the terms of the loan. The involvement of the court at this stage of the loan process ensures that a lender cannot repossess real property without making a showing to an independent third-party that the situation entitles the lender to possession of the property and that he has complied with the requirements of the law.
In many instances, people buy residential property by taking out a loan to pay for the transaction. Banks and financing companies typically make these types of loans. They ensure repayment by taking a security interest, or mortgage, in the purchased property. This mortgage allows the lender to take the property in repayment of the loan if the borrower defaults on his obligations under the loan agreement.
If a borrower stops making payments under the loan agreement, he is in default. The lender can then initiate proceedings against the property to take it from the borrower in repayment of the debt. The law requires that the process of dispossessing a person from his home go through the court system in a proceeding called a foreclosure. This prevents unilateral action by the lender that can result in public mayhem, as private-party lenders attempt to remove families from homes under circumstances that the lender evaluates and controls.
In most jurisdictions that have a legal system based on English common law, residential property cannot be taken by a lender from a defaulting borrower without a foreclosure order from the court. A foreclosure order is a written judicial decision that establishes that the lender is entitled to possession of the property at issue. This requirement distinguishes the repossession of residential property based on a mortgage from other types of property repossession based on other types of loans. For example, in many jurisdictions, a lender can repossess a car financed with a car loan without going to court, because the borrower agrees to summary repossession in case of default as a provision of the loan.
The requirement that a lender obtain a foreclosure order before moving to take possession of residential property is akin to the requirement that a landlord get an order of eviction before dispossessing a tenant. Public policy protects the sanctity of a home and requires the party seeking dispossession to make a proper showing to an independent party of his right to possession before it allows a private party to violate another person's home. The courts serve this function and review the circumstances surrounding the default to make sure the lender hasn't engaged in any unscrupulous or illegal behavior before issuing the foreclosure order.
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