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1.2.2.1 Identify the Type of Foreclosure

Foreclosure occurs when real property is sold to satisfy an unpaid debt. The debt is often a home mortgage, but foreclosure can be based on other types of liens, too. Tax liens, mechanics’ liens, and other debts can lead to foreclosure. Foreclosure—the process by which the home is sold—is governed by state law. State laws vary widely and different laws may apply to different types of foreclosure. Therefore, an important first step is to identify what type of foreclosure the client is facing.

Mortgages or deeds of trust typically are foreclosed either by judicial or non-judicial process.1 Judicial foreclosure requires a court action prior to foreclosure in which the borrower can raise defenses to foreclosure. In states permitting non-judicial foreclosure by “power of sale,” there is little to no court supervision of the foreclosure process. In order to raise defenses to a non-judicial foreclosure, the borrower must file an action for injunctive relief.

For manufactured homes, state law determines whether the home must be foreclosed upon as real property or repossessed as personal property.2 Another type of foreclosure (or forfeiture) may occur pursuant to a real estate installment sales contract.3 Several states regulate land installment sales contracts by statute, detailing procedures for termination, forfeiture, or foreclosure. However, in most states, regulation of installment land sales contracts is left to the common law. The procedure for foreclosing a condominium or homeowner association lien is determined by state statute.4 Lastly, foreclosures can take place pursuant to tax liens.5 Tax lien foreclosures generally differ from other types of foreclosure, and the sale process varies by locality.

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