Foreclosure

A mortgage is secured against the property, which means the lender has the right to recover its money by selling the property if the borrower defaults. Foreclosure is the process of enforcing that right.

In the United States, foreclosure usually begins after several months of missed payments. Depending on the state, it may be judicial, carried out through the courts, or non-judicial, carried out by the lender following procedures set out in the mortgage documents. The property is typically sold at auction, and the proceeds are used to repay the mortgage and costs.

For example, a homeowner who loses their job and stops paying their mortgage might receive warnings and notices, and eventually face foreclosure if no arrangement is made with the lender.

Foreclosure severely damages the borrower's credit record. Alternatives may include loan modification, forbearance, a short sale where the lender agrees to accept less than the amount owed, or handing the property back voluntarily. In the United Kingdom, the equivalent process is called repossession, and lenders must follow strict rules and usually obtain a court order before taking possession.