Foreclosure orders allow lenders to take possession of property offered as security for a loan after a borrower defaults on payments. Court involvement ensures the lender complies with legal requirements and prevents unilateral action. The requirement for a foreclosure order distinguishes residential property repossession from other types of repossession.
A foreclosure order is a written statement from a court that authorizes a lender to take possession of the property offered as security for a loan of money. It is a remedy that a lender may request after a borrower has failed to make payments as stipulated in the terms of the loan. Court involvement at this stage of the loan process ensures that a lender cannot repossess real property without showing an independent third party that the situation entitles them to possession of the property and that they have complied with the requirements of the Act.
In many cases, people purchase residential property by obtaining a loan to pay for the transaction. Banks and finance companies usually grant these types of loans. They secure repayment by taking a security interest, or mortgage, in the purchased property. This mortgage allows the lender to take the property to repay the loan if the borrower defaults on the borrower’s obligations under the loan agreement.
If a borrower stops making payments under the loan agreement, they are in default. The lender can then initiate proceedings against the property to take it from the borrower in payment of the debt. The law requires that the process of foreclosure of a person from their home goes through the court system in a proceeding called foreclosure. This prevents unilateral action by the lender that can result in public chaos, as private lenders attempt to remove families from their homes in circumstances that the lender evaluates and controls.
In most jurisdictions that have a legal system based on English common law, a lender cannot take residential property from a defaulting borrower without a foreclosure order. A foreclosure order is a written court decision that the lender has the right to possession of the property in question. This requirement distinguishes residential property repossession based on a mortgage from other types of property repossession based on other types of loans. For example, in many jurisdictions, a lender can repossess a car financed with an auto loan without going to court, because the borrower agrees to summary repossession in the event of default as a provision of the loan.
The requirement that a lender obtain a foreclosure order before moving to take possession of residential property is similar to the requirement that a landlord obtain an eviction order before evicting a tenant. Public policy protects the sanctity of a home and requires that a party seeking dispossession make adequate demonstration to an independent party of its right to possession before allowing a private party to trespass on another person’s home. Courts perform this function and review the circumstances surrounding the default to ensure that the lender did not engage in any unscrupulous or illegal behavior prior to issuing the foreclosure order.
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