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Involuntary Alienation


Foreclosure vs. forfeiture:

Foreclosure is the loss of property to pay off a debt.

Forfeiture is losing the property because of disobeying a condition in the deed.


Garn Act

Garn Act (Garn-St. Germain Depository Institutions Act)

Federal statute enabling federally chartered banks to enforce their due-on-sale (alienation) clauses even if state laws prohibit such clauses.


Types of Involuntary Alienation

Condition Precedent

A condition that must be met before the transfer of title.

Foreclosure is when the lender takes back property when the homeowner fails to make payments on a mortgage. 

Foreclosure processes differ by state. They are generally done in two ways. If done by filing a lawsuit, it is called “judicial foreclosure.” In some states, the lender can foreclose without going to court, and that is called “non-judicial foreclosure.” State foreclosure processes require that the borrower(s) be notified regarding the foreclosure proceedings. There are also other federal rules that may apply.

The foreclosure process generally may proceed in one of these ways depending on your state: 

Judicial or Non-judicial

Judicial Foreclosure

This requires that the process goes through a court where the borrower can raise defenses.

The court approves the sale of the property. Property is usually sold to the highest bidder.

Non-judicial Foreclosure

This is done without filing a court action and is carried out by a series of steps, including required written notices under a “power of sale” clause in the mortgage or deed of trust.

Standard in a Deed of Trust. Allows the Trustee to sell the property to the highest bidder for the lender.

Seller financing often has a Deed of Trust.

Deed of Trusts with Non-judicial foreclosures are easy for the lien holder to capture the property easier to foreclose

Foreclosure processes require that the borrower(s) be notified regarding the proceedings and generally involve giving public notice.

Strict Foreclosure

Only Connecticut and Vermont have laws that permit a strict foreclosure.

The lender simply asks the court to declare the homeowner to be in default on the mortgage. The court can transfer the title to the lender directly if it finds in favor of the lender and approves the foreclosure.

Deed in Lieu of Foreclosure

A friendly foreclosure. The property usually reverts to the lender in a better condition than other foreclosures. The borrower will attempt to surrender the deed. The lienholder is not forced into accepting it.

Banks sometimes will not take a Deed in Lieu of Foreclosure because they may have to pay off a second loan.

Short Sale

A short sale in real estate is when a financially distressed homeowner sells their property for less than the amount due on the mortgage. The buyer of the property is a third party (not the bank), and all proceeds from the sale go to the lender. 



REDEMPTION – The action of saving your ownership of a property

Equitable Redemption

Occurs before the sale. The borrower pays the stated amount, and the mortgage is reinstated.

Statutory Redemption 

After the public sale, the borrower has a certain amount of time to redeem his property.


Real Estate Owned

R.E.O. – Real Estate Owned. Bank ownership. The property has been foreclosed and is now owned by the bank.