Property Foreclosure

With personal property, foreclosure rules generally follow your state's version of the Uniform Commercial Code. After default, a secured lender may:

• Take possession of the collateral and sell it at a public or private sale, or
• Lease, license or otherwise dispose of any or all of the collateral in its present condition

The lender must be able to show that it acted in a "commercially reasonable" manner in preparing for and processing the sale of the collateral. All of this can be accomplished in a fairly short period of time.

With real property, the foreclosure rules are usually completely different and tend to be stricter. The rules also vary greatly from state to state. In general, though, the foreclosure process on real property will involve:

• The lender giving you a written notice of default, which will likely come by certified mail
• Your being given a period of time after proper notice pay the lender the amount required to cure the default and to reinstate your loan
• The lender electing to proceed with foreclosure under available remedies, which may include:
  • Pursuing a judicial foreclosure by filing a lawsuit to obtain a court order to sell the property
  • Pursuing a non-judicial foreclosure by following procedures spelled out in your mortgage (or deed of trust) that allow a trustee to foreclose on and sell your property without a court order
• After the required time has elapsed, your being given a notice of foreclosure sale
• A public sale being held by auction where the highest bidder can buy your property
• If no one bids enough, the lender itself buying the property by submitting a credit bid based on the amount you own on your mortgage
• If the lender ends up with the property, it being sold by private sale at a later date
• If you have not vacated the property by the time of the foreclosure sale, an unlawful detainer lawsuit being filed to evict you

At any point during these proceedings, the borrower is usually in the position to keep the property if the loan is paid off and the lender is reimbursed for any foreclosure costs.

A different set of rules will also apply if there is what's called "mixed collateral" (both real and personal property). Generally, state versions of the Uniform Commercial Code allow lender to foreclose on both types of collateral at the same time.

You may be able to at least temporarily stop a foreclosure by:

• Asserting a defense - for example, that the foreclosure process is not being handled in a commercially reasonable manner
• Filing bankruptcy, which imposes an automatic stay that prevents a lender from proceeding forward without permission from the bankruptcy court

But you have to be realistic in assessing your options, as the laws in all states give lenders many rights when it comes to protecting their security interests.

Regardless of the type of security or the property involved, make no mistake about it: lenders can and will foreclose on business assets and sell them to pay off a loan that's in default. The good news, though, is that lenders don't like foreclosures because they're costly and difficult and will usually work with you if you give them better options.

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