Types of Foreclosure

In order to exert its market power the upstream monopolist has an incentive to alter the structure of the downstream market. For example, excluding all downstream firms but one eliminates the “Coasian pricing” problem and restores U ’s ability to sustain the monopoly price; exclusive dealing , which de facto monopolizes the downstream market, thus allows U to exert more fully its upstream market power. [We define here exclusive dealing as an upstream firm’s commitment not to deal with alternative downstream firms.

Examples include exclusive license or franchise contracts. Rey, P. and Tirole, J. (2006). Foreclosure can also bring about vertical integration. This is a situation where “Generally, strong downstream competition (e. g. , from the removal of line-of-business restrictions) and/or weak upstream competition make foreclosure, and thus vertical integration, more attractive. ” Rey, P. and Tirole, J. (2006). The practice of providing inappropriate loans with egregious terms is called predatory lending.

Moreover, recent mortgage market changes are enabling a dangerous phenomenon -- unprepared borrowers end up with loans that do not suit their needs and circumstances. For instance, a lot of buyers take out nontraditional mortgages (NTMs), such as interest-only loans, but are financially unprepared for the payment reset—when the monthly payment suddenly rises. The end result would be that many borrowers are stuck with mortgage arrangements that endanger their ability to retain their home and strip them of the ability to build a “housing asset. ”

Currently, a number of state laws and policies preside over foreclosure proceedings to protect both the mortgagor and the holder of the mortgage from rip-offs, deception and inequities. In America, though states have their own distinct foreclosure policies and procedures, the basic premise of foreclosure law remains the same. The mortgage holder can normally instigate foreclosure anytime after a default on the mortgage. Within the United States, there exist several types of foreclosure. Two are widely used, with the rest being possibilities only in a few states.

The most important type of foreclosure is foreclosure by judicial sale. This is available in every state and is the required method in many. It involves the sale of the mortgaged property done under the supervision of a court, with the proceeds going first to satisfy the mortgage, and then to satisfy other lien holders, and finally to the mortgagor. Because it is a legal action, all the proper parties must be notified of the foreclosure, and there will be both pleadings and some sort of judicial decision, usually after a short trial.

The second type of foreclosure, foreclosure by power of sale, involves the sale of the property by the mortgage holder not through the supervision of a court. Where it is available, foreclosure by power of sale is generally a more expedient way of foreclosing on a property than foreclosure by judicial sale. As it is, the majority of states allow this method of foreclosure and just like foreclosure supervised by the courts, in this method of foreclosing a property, again, proceeds from the sale go first to the mortgage holder, then to other lien holders, and finally to the mortgagor.

Other types of foreclosure are only available in limited places and are therefore considered minor methods of foreclosure. Strict foreclosure is one example. Under strict foreclosure, when a mortgagor defaults, a court orders the mortgagor to pay the mortgage within a certain period of time. If the mortgagor fails, the mortgage holder automatically gains title, with no obligation to sell the property. Strict foreclosure was the original method of foreclosure, but today it is only available in New Hampshire and Vermont.