From ArticleWorld

Foreclosure is the term used to define the legal process by which a borrower who is in default under a mortgage (unable to pay the loan) is deprived of his or her interest in the mortgaged property. This usually requires a forced sale of the property at public auction with the proceeds of the sale being used to fulfill the mortgage debt. It is a court action instigated by the mortgagee for the purpose of obtaining a court order for the debtor's real estate to be sold to pay the mortgage. The mortgagee may be a bank or some secured creditor.

Foreclosure in America

In most American states under the jurisdiction of common law, two kinds of foreclosure procedures prevail. In the first kind of foreclosure procedure, known simply as the foreclosure or in some cases as the judicial foreclosure, the bank or the mortgagee takes possession of the title or the deed of the mortgaged property. The mortgaged property is then given over to the sheriff of the county or some other court official for the purpose of conducting an auction. In cases where the value of the debt owned is less than the market value of the mortgaged property, the bank bids the amount of the debt and claims the title and the property as its own.

In other states where the non-judicial kind of foreclosure procedures are in practice, the debtor is given a notice by the mortgageeā€™s agent or attorney about the impending sale of the property to recover costs. This is by way of warning to the debtor to overcome his/ her debts, or stop the sale in any other legal manner. Failure to do so generally ends in the disputed property being sold by auction in a manner similar to that of a judicial foreclosure.

In most American states, the mortgagee is required by law to send information of the impending auction to the IRS (Internal Revenue Service) at least 25 days before the actual auction for federal tax purposes.