Frequently Asked Questions
LEGAL TERMS AND DEFINITION
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Deed of Trust: A deed of trust is a document which pledges real property to secure a loan, used instead of a mortgage in certain states. A deed of trust involves a third party -- a trustee--usually a title insurance company or escrow company, who acts on behalf of the lender. When you sign a deed of trust, you in effect are giving a trustee title (ownership) of the property, but you hold the rights and privileges to use and live in or on the property. The trustee holds the original deed for the property until you repay the loan. When the loan is fully paid, the trustor requests the trustee to return the title by reconveyance. If the loan becomes delinquent the beneficiary can file a notice of default and, if the loan is not brought current, can demand that the trustee begin foreclosure on the property so that the beneficiary may either be paid or obtain title. Unlike a mortgage, a deed of trust also gives the trustee the right to foreclose on your property without taking you to court first.
Mortgage: A Mortgage is a pledge of real property to a creditor as security for the repayment of a debt. For example, if borrowed money is used to purchase property, the entity you’ve borrowed the money from can take ownership of the property should there be a default. The Statute of Frauds requires that a mortgage must be in writing. Mortgages must be registered with the County Recorder or Recorder of Deeds. There is no specific form for mortgages and mortgages may even be handwritten. Although mortgages are usually governed by state law, there is some federal oversight. Therefore, to be valid a mortgage must meet those requirements as well as the law of the state in which the property offered as security is located.
Judicial Foreclosure: The judicial process of foreclosure involves filing a lawsuit to obtain a court order to foreclose. In a judicial foreclosure the defendant must be properly served with the complaint. The defendant is required to answer the complaint generally within twenty days, although rules vary amongst the states. The process also includes Motion—which can stop or slow the process. Especially important is the Motion For Summary Judgment, generally filed by the plaintiff bank or lending entity. The judicial process of foreclosure has been employed more since the late 1980’s, when lenders found that they were foreclosing on residential property worth substantially less than the amount owed. Generally, after the court enters a foreclosure judgment, the property will be auctioned off to the highest bidder. In the case of judicial foreclosure where the process is carried out according to the rules of equity, deficiency judgments are permitted and, according to state law, the borrower may or may not have rights of redemption. However, when a power of sale clause is present, lenders may, at their option, choose to forego a lawsuit and foreclose by selling the property, as outlined in the “No Power of Sale Foreclosure Guidelines”.
Non-Judicial Foreclosure: The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee.. Regulations for this type of foreclosure process are outlined in the “Power of Sale Foreclosure Guidelines”.
Power of Sale Foreclosure Guidelines: If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. However, if the deed of trust or mortgage contains a power of sale clause, but does not specify the time, place and terms of sale, then a foreclosure sale may take place at the front or main door of the courthouse of the county where the property located, after default of the deed of trust or mortgage, for cash to the highest bidder. Each state has different requirements regarding time constraints and sale dates. Refer to the specific page for each state for more information.
Right of Redemption: Redemption refers to a seller's right to repurchase something sold by returning the purchase price to the buyer. It is often used in the context of foreclosures on real property, where the owner buys back property by paying off a loan, interest and any costs of foreclosure.
Deficiency Judgment: A deficiency judgment is typically in an amount equal to the difference between the funds received from a court sale of property and the balance remaining on a debt. Deficiency judgments are commonly issued when a property owner fails to pay amounts owed on a mortgage and the property securing the mortgage is sold to satisfy the debt, but the proceeds from the sale are less than the amount owed. Deficiency judgments are not allowed in all states. In order to get a deficiency judgment in most states, the party owed money must file a suit for judicial foreclosure instead of just foreclosing on real property. However, some states allow a lawsuit for a deficiency after foreclosure on the mortgage or deed of trust. Local laws should be consulted for specific requirements in your area.