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Understanding mortgage foreclosures

Perhaps, no single word is as terrifying to a Tennessee homeowner as "foreclosure." Anyone who is behind on mortgage payments fears that the lender may commence a foreclosure proceeding at any time. And, the family home may be lost, which means that a bankruptcy will ensue. Fortunately, the reality of the foreclosure process is less harsh than most people imagine.

A mortgage loan has two parts: the promissory note, which is the promise to repay the loan with interest, and the mortgage, a legal document that gives the lender the right or lien to reclaim the property if the borrower fails to make timely payments. The mortgage spells out the procedures that the lender must follow to reclaim the property.

Every borrower has an important right under Tennessee law: the right to redeem, that is, reclaim the property after the bank has proved that the borrower is in default. The right to reclaim is called, "equity of redemption," and it is that right that is "foreclosed" when the borrower successfully asserts its lien in the property.

Our state's laws give every lender the right to foreclose the equity of redemption by commencing a judicial action, but this process can be slow. Virtually every mortgage written contains a "power of sale" clause that gives the lender the right to foreclose by reclaiming the property and selling it at a public auction.

The lender will use the proceeds from the sale to repay the loan balance and the costs of foreclosure. If any balance remains, it is paid to the debtor. A properly written power of sale clause specifies what kind of notice must be given to the borrower, when the sale will occur and the terms of redemption.

The power of sale clause will also specify the length of time that the borrower has to pay the balance due on the loan; this payment is called redemption. The successful bidder must wait until the period of redemption, usually two years, expires before it can get a deed to the property.

The failure of the lender to properly follow the foreclosure procedures may constitute a forfeiture of the right of foreclosure or otherwise limit the lender's rights. Anyone who is worried about having a mortgage foreclosed may benefit from a consultation with an experienced lawyer who can guide a person through the foreclosure procedure.

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