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How different types of foreclosure may affect you

Foreclosure is the process by which a lender, such as a bank or mortgage company, takes possession of a property when the borrower defaults on the mortgage. While this may seem like a simple concept, many people do not realize there are different types of foreclosures. There are three main types of foreclosure: judicial, non-judicial, and strict. Judicial foreclosure is the most common. It is also the only type of foreclosure used in Ohio.

Under Ohio law, a lender must get a court order to foreclose on your property. The judicial foreclosure process requires the lender to file a lawsuit in court. The lender must notify all relevant parties of the action. You, as the borrower, have the opportunity to contest the foreclosure. After you receive notice of the lawsuit, you can respond either by making a payment or by raising any objections or defenses. If the lender is ultimately successful on the foreclosure claim, the court will issue an order allowing the lender to begin the process of selling your home. 

Non-judicial foreclosures, or power of sale foreclosures, are the second most common type of foreclosures, but they are not recognized in the state of Ohio. Unlike judicial foreclosures, power of sale foreclosures do not require a court order. As a result, they are a much quicker process. Once a certain time period has passed, the lender sells the property through a public auction. This type of foreclosure is allowed only if the mortgage contains a power of sale clause.

The third type of foreclosure, or strict foreclosure, is rare. Only two states—New Hampshire and Vermont—recognize it. Strict foreclosure means that if a borrower defaults on a mortgage, he or she has a certain period of time within which to pay the mortgage. If the borrower fails to do so, the lender automatically gains title to the property and is not required to sell it.

If you are facing foreclosure, it is important to know that you have options. For example, you can try to work out a repayment agreement with your lender or modify your loan to make the mortgage payments more manageable. To learn more about these and other options, consider speaking with an experienced foreclosure attorney.

Source: HUD.gov, “Foreclosure Process,” Accessed Aug. 9, 2015

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