What is Foreclosure

Foreclosure is a process through which lenders recover or get back the money they loaned after an owner stops paying the mortgage. In Massachusetts, foreclosure usually does not involve any court action, with one minor exception, which is explained in the section of this chapter called How to Get Information about a Foreclosure.

When a mortgage is originally signed, it normally contains a 'power of sale' clause that allows the lender to sell the property when the owner does not make the mortgage payments. The lender must first give proper notice to the owner of a foreclosure by sale. Then an attorney, as a representative of the lender, usually sets up the sale in the form of an auction. Auctions are advertised in the local newspaper and conducted by a private auctioneer right outside the property. Often, no one bids high enough at the auction to allow the lender to recover its investment. In this case, the lender will purchase the property and then try to sell it later through a real estate broker.²

² Mortgages are often bought and sold, so the holder of the mortgage at the time of the foreclosure sale may not be the same company that gave your landlord her original loan. In recent years, many mortgages have been packaged into 'investment vehicles' and sold to groups of investors. These investors often form a trust and hire a bank as the trustee of the trust. The trustee usually works with one or more 'servicers,' companies that collect payments and manage the foreclosure process. It may be hard for you to identify the servicer who is managing the apartment you rent, even though the servicer is often the company that is making decisions about what will happen to the building and the people who live in it. The lenders also usually work with real estate agents who are responsible for selling the property after foreclosure. Often, a tenant's only contact with the lender or servicer is through this real estate agent or a lawyer representing the lender.

Produced by Esme Caramello and Rafael Mares
Created April, 2008

What is Foreclosure

What Is Foreclosure

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