Foreclosure is a process by which the bank or a private creditor takes back a property from the debtor because of failure to keep up the payments.
The purchase agreement contains a clause that allows the creditor to take back the property when the borrower becomes a defaulter.
The commercial foreclosures are mainly conducted by either judicial or nonjudicial process depending on the location of the property and the dictation of the documents.
Here are some basic idea
about the foreclosure process associated with commercial property.
What is a Judicial foreclosure?
The judicial foreclosures are processed through the court system and are initiated when the creditor files a lawsuit against the borrower seeking an order for sale of the property.
The defaulter gets a certain amount of time like 20 to 30 days to respond to the suit by filing an answer with the court.
If no answer is filed, the creditor's attorney will ask the court for a foreclosure judgment and if the foreclosure is contested by the borrower, then there will be a fair trial.
What is a Nonjudicial foreclosure?
The nonjudicial foreclosure can be followed by the creditor if the loan documents contain a power of sale clause and is allowed by state foreclosure law.
With a nonjudicial foreclosure, the creditor forecloses the commercial property by taking a series of out of court steps as directed by the state law.
Each state laws are different and the creditor may mail the defaulter about the sale of the commercial property or publish notice in a newspaper.
What is a Foreclosure sale?
At the end of a judicial or nonjudicial foreclosure, the commercial property gets auctioned at a foreclosure sale & is sold to the highest bidder.
When no one bids on the property at the sale, then the creditor makes the bid (credit bid) equal to the amount owed by him and need not have to pay anything.
If there is no credit bid, then the borrower may ask permission to sell the property to a new owner outside of the foreclosure.
Can you Avoid a foreclosure?
It is clear that the concept of foreclosure is straight forward, but the processes involved for the result can be very complex.
Therefore, the commercial borrowers who have defaulted on their loan should try to work out a deal with the creditor to avoid a foreclosure.
You may succeed in lowering the interest rate and if this doesn't happen, then it is better to talk with your lawyer about the prospects of filing for bankruptcy.
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