Can a Private Mortgage Foreclose?

Using a private mortgage can help you get approved for a loan, even if you have questionable credit. A private mortgage is a loan that you take out from another person or from a business instead of from a traditional mortgage lender. Once you get into this type of loan, it could still be foreclosed on just like any other mortgage.

When you enter into a private mortgage, the private mortgage lender sets up a lien on the property. In most cases, the private mortgage lender gets a lien in first position. This way, if you fail to make your mortgage payment, the mortgage lender can simply file the appropriate paperwork with the county to initiate the foreclosure process. In some states, the private mortgage lender can simply foreclose, while in other states, the lender must work with the court system to initiate foreclosure.

The process of handling late payments and foreclosures on private mortgages is determined by the loan agreement. When the private mortgage lender and the borrower sign the loan documents, they agree on the course of action that will be taken if the borrower does not pay back the loan. For example, the agreement should note when late fees will be charged and how much they will be. After the late fee is charged, the documentation governs when the loan falls into default and what happens next.

Just like with a regular mortgage, a private mortgage could also create a deficiency balance. When you cannot afford to pay a private mortgage, the lender will foreclose on the property. After the private mortgage holder forecloses on the property, it will be sold at an auction, in most cases. If the house does not sell for the amount of the mortgage balance, it leaves a deficiency balance. In some states, lenders have the right to come after you for the deficiency balance by filing a civil lawsuit against you.

When a private mortgage lender needs to foreclose on a property, the sheriff may have to get involved. In some states, the court will issue an order and give it to the sheriff to enforce the eviction of the property before foreclosure. In other states, the lender simply has to file a notice of foreclosure with the county clerk and present that paperwork to the sheriff. If you are not willing to move out on your own, the sheriff will force you to.

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