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Definition of Foreclosure |
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I've been hearing lots about foreclosures in the news recently, but I'm not really sure what it means. What actually is a foreclosure?
Thank you!
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When a borrower fails to meet the obligations of a mortgage, the lender may foreclose on the loan. Foreclosure is the procedure by which the lender can gain ownership of the property for which the loan was originally issued.
The lender who forecloses a loan starts by demanding payment of the whole loan immediately. The borrower, who is already in trouble with monthly payments, can't pay that of course. The lender then has the right to have the property sold at public auction and collect the debt from the proceeds.
Exact procedures differ from one area to another. Other people who have financial claims against the property -- second mortgages, mechanic's liens, judgments -- usually lose out completely, though they can take some legal steps to protect their claims.
If, on the other hand, the auction brings more than enough to pay the foreclosed loan, back taxes and legal costs, anything left over would go to the original owner.
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Edith
Originally published on December 28, 2007 |
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