A Foreclosure Is When a Lender Takes Control of a Property After the Borrower Misses Several Mortgage Payments
This mortgage pays off the remainder of the cost of the property, but the property becomes subject to the terms of the mortgage.
When everything goes smoothly, the borrower pays their mortgage bill on time, eventually pays the loan off, and has title to the property, free and clear of all loans.
However, things often don’t go so smoothly.
A borrower may run into financial hardship and be unable to pay the mortgage on their home. Sometimes, they may be able to catch up with the payments and stave off an adverse action by the lender. Other times, the borrower falls further and further behind on their payments. This is where the process of foreclosure comes into play.
Before foreclosure proceedings can begin, the borrower must default on their loan. This means the borrower must be behind on their payments for a certain time. This time is usually specified in the terms of the mortgage agreement. Following default on the terms of the mortgage, the lender must notify the borrower that they are in default and provide them with information on how to correct that default.
If the default is not corrected promptly the borrower must be behind on their payments for a certain, the lender may notify the court that they intend to pursue foreclosure. This is when the process officially begins. Once proceedings begin, a foreclosure sale date is set.
If the borrower does not correct the default and bring payments current or fully pay off the mortgage, the property will proceed to sale. If and when the property is sold off, the lender will receive the proceeds of the sale up to a maximum of the amount that they were still owed on the mortgage. Any amount beyond the amount owed on the mortgage goes to the borrower.
However, if the house sells for less than the amount owed on the mortgage, the borrower is still responsible to the lender for any amount left on the mortgage which was not paid off by the sale of the property.