There can seem to be an infinite of unfamiliar terms that homeowners in foreclosure come across when attempting to understand what is happening to them and how they can escape the process with their home and credit intact. One of the more uncommon terms, but one which can cause quite a bit of confusion when it is used is “forced foreclosure.” Although a legal term, which may have different meanings in different states under different circumstances, the term most often simply refers to the process of taking a home through the legal process to have it auctioned to satisfy a defaulted debt.
A forced foreclosure indicates that the homeowners are being foreclosed on because they have not kept up one of the provisions of the mortgage contract that would allow them to stay in their home. Of course, there are relatively few actions that would result in the initiation forced foreclosure proceedings on a given property, but it is worth examining them so that borrowers do not fall into one of these traps and find that they are suddenly in foreclosure. Even if property owners are only behind on payments, making one simple mistake could push them into a forced foreclosure situation prematurely.
The most obvious way to end up in a forced foreclosure is simply for homeowners to stop making the monthly payments to the lender. In a matter of months, regardless of how much they want to save the house, the borrowers will end up being served with the lawsuit paperwork and will have to defend against the bank’s attempts to have the house sold at a county sheriff sale. Although the owners may not want to have their home auctioned through the foreclosure process, they may have little other option if they have not made the payments as agreed in the loan contract.
Secondly, homeowners may find that the bank has sued them for foreclosure if there is a sudden transfer of ownership. Many mortgages have a “Due on Sale” clause, which stipulates that a change in ownership or a newly recorded deed will trigger the full amount of the loan to be due. This is designed to prevent owners from adding or subtracting different interested parties on the title of the house without the bank approving. Even a quitclaim deed to a third party or simply adding another family member to the deed can trigger this clause.
In terms of properties where the mortgage payments have fallen behind, homeowners are often under the impression that they can transfer the title to some other third party or business and stop foreclosure. This is not only not true, but it could also quicken the pace of any foreclosure proceedings. Instead of obtaining a judgment for foreclosure after a lengthy pre-foreclosure stage, the bank may be able to call the entire loan due as of the date of the ownership transfer.
These two events, defaulting on the payments or triggering a Due on Sale clause, could initiate forced foreclosure proceedings on a property. Regardless of what the homeowners do, the process will continue unless the loan is paid off or reinstated. In effect, the bank is attempting to force the homeowners to uphold the mortgage contract in some way, either through paying the bank or having the house auctioned off to satisfy the debt.
A forced foreclosure may also be considered in comparison to such methods to save a house as a deed in lieu of foreclosure, a commonly used option for homeowners with few other options. Using a deed in lieu, borrowers simply transfer ownership of the house into the bank’s name in exchange for not going through the full legal process of losing the home. In this case, borrowers voluntarily admit that they can no longer pay the mortgage and give title to the lender, which the bank accepts as payment in full of the mortgage.
Understanding foreclosure legal terms can often take much longer to accomplish than simply saving the home, and property owners may not even have enough time left in the process to gain a complete awareness of every relevant aspect of how foreclosure works. However, it is important that every borrower understands at least the basics of the process and some terms that may be used, such as “forced foreclosure” and other important ones, in order to catch any blatant predatory acts by the bank, or simply to avoid being taken advantage of by a foreclosure scam operator.