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What Is a Forfeiture?

One example of forfeiture is losing a home after defaulting on a mortgage agreement.
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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 18 November 2014
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A forfeiture is loss or property or assets due to some type of failure to honor contractual commitments. The situation may involve a decision to stop making payments according to the terms and provisions found in a purchase agreement, or be the result of an inability to honor the obligation due to some sort of financial reversal. When this happens, the borrower is found to be in default and thus forfeits or loses control of the assets involved in the agreement, and must surrender them to the lender.

One of the more common examples of forfeiture is found with a mortgage default. In the event that the debtor is unable or unwilling to continue making payments on the outstanding balance of the mortgage, the lender has the right to declare the mortgage agreement to be in default, and seek legal means to secure the property used as collateral for the loan. This means that by ceasing to make the payments according to the terms outlines in the mortgage agreement, the homeowner forfeits the right to retain control of the property, and the title will be transferred to the lender. At that time, the lender can sell the property as a means of settling the outstanding debt, or chose to hold onto the property for other purposes.

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It is also possible to undergo forfeiture of other assets. For example, an investor may forfeit his or her interest in shares of stock. This usually comes about because of some breach of contract involving the purchase of the shares. When this happens, the previous owner has the right to declare the forfeiture and regain control of the shares. For example, if the shares were purchased by the investor as part of an initial public offering, and fails to follow through with the payment terms, he or she forfeits the shares and they are restored to the full ownership of the company that issued the IPO.

The actual incidence of forfeiture must usually be affirmed in a court of law, according to the laws that apply in the land where the activity took place. Laws concerning the process of declaring that forfeiture has taken place, and regulations on how to manage the transferal of the property involved in the forfeiture, will vary from one country to the next. For this reason, it is important to utilize the services of a legal professional when any type of default on a contractual agreement occurs, so that the forfeiture can be recognized legally and the appropriate legal action can be taken.

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