I have been searching for the longest time for an answer to the following question about foreclosures in the U.S., and I wonder whether you can help with an answer.
I am in England and the law about foreclosures is as follows:
If the bank wants to kick out the owner for non-payment then the bank goes to court and gets an order that allows it to sell the property. It sells the property as 'mortgagee in possession'.
Or, if the owner just hands the keys over to the bank to enable the bank to sell, then again the bank sells the property as mortgagee in possession.
The important point is that if there is any surplus after the bank has paid itself off, then that surplus goes to the owner (assuming there are not any second mortgages on the property, in which case the surplus goes to the second mortgagee, and any surplus after that goes to the owner).
I know that the likelihood is that there will not be a surplus in many situations, but suppose there is...
Now there is another way that a bank can take back the property in England, and that is to foreclose. If it does that, then any surplus after it pays itself off does NOT go to the owner. Instead, the bank keeps it for itself.
However, at any time before, or up to six months after the sale, the owner can apply to court to have the foreclosure changed into a sale as mortgagee in possession.
Banks in England do not go the foreclosure route.
Apart from having the owner being able to get the court to overturn the foreclosure and turn it into a sale where the surplus goes to the owner, it would also make banks very (or even more) unpopular with the general population and the media.
So, how does foreclosure operate in the U.S.? Who gets the surplus?