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Foreclosures Overview

Chapter 3

What Types Of Foreclosures Are There?

Foreclosures may be quite familiar with most real estate property owners or investors but many still don’t know how they really work. Before you invest your money into real estate, it is of outmost importance that you understand the actual processes of foreclosure. A real estate investor is no different from a new homebuyer when it comes into acquiring the full understanding of the real estate industry which includes the foreclosure process. This may not be difficult to understand because practically almost all provinces adhere to similar basic foreclosure procedures.


Foreclosure is a procedure where a lending in situation or bank repossess or take hold of the property because the owner or borrower fail to make the payments according to the terms of mortgage or loan. There two types of foreclosures, the judicial and non-judicial.

Judicial Foreclosure:

Judicial foreclosure is a legal procedure done through the courts to obtain judgment for the foreclosure. When people purchase a property and they don’t have enough money to purchase outright, they borrow from a lender or bank. In exchange for lending the money the bank will hold a lien against the property. If the borrower does not make payment according to the terms, the loan goes into default and lender can exercise the lien against the property. This will be made after several notices are given to the borrower to make the payments current. If no attempts are made to make repayments, then legal procedures will follow. After the court judgment is made, the bank/lender will now have legal possession of the property so that they can start the selling of the property to get back the loan capital . Legal documents will be filed including the lis pendens or a notice that legal action is pending on this particular property. Another term for this legal action is mortgage foreclosure.

Non-Judicial Foreclosure:

Non-Judicial Foreclosure is a procedure does not require court action because the title stays with the lender until full payment on the loan is made. At the start, the lender issues a deed of trust which can include a power of sale clause on the property. This involves sale of the property by the mortgage holder without court supervision. When the borrower doesn’t make the loan payments according to the terms, a Notice of Default is sent to the borrower. After a specified holding period, a Notice of Trustee Sale can be posted on the property. This process is much faster than a Judicial Foreclosure because the owner of the home does not have a redemption period (or has a very short one) to get back up to date with payments.

Pre-Foreclosures: (before the auction)

Properties with Notice of Default are called preforeclosures. These properties may be bought from the homeowners or from the financial institution holding the mortgage before the start of the foreclosure process. The homeowner can be relieved of his financial liability through this procedure and the buyer can obtain the property at a lower cost.

Bank Auction Foreclosures: (at the auction)

The properties with Notice of Trustee Sale are categorizes as auction properties. The banks or lending institutions place a foreclosed property into auction to get back the loan capital on the defaulted property. Prices may start from the outstanding amount of mortgage which can be an opportunity for buyers to get lowest cost for the property.

Bank Owned Foreclosures: (after the auction)

If there are no bidders for the property for sale or the minimum bid is not met, the property becomes a bank owned property.  The bank or lending institution can then start selling the property through a brokerage firm and get back their capital for the loan.


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