What is forced foreclosure?

Answer 1

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 initiate forced foreclosure proceedings on a 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.

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. 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 escape 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.