Glossary Terms

Foreclosure

A legal remedy for non-payment of a mortgage debt. The lender takes and sells the property to cover amounts owed. Any remaining proceeds are returned to the borrower.

Foreclosure is a legal remedy for non-payment of a mortgage debt. The lender takes and sells the property to cover amounts owed. Any remaining proceeds are returned to the borrower.

When a borrower has not paid a mortgage as agreed for several months, the lender normally files a Notice of Default, which is a public record. Borrowers may have several months or weeks to “cure” the default by bringing the loan current or work out another arrangement with the lender. Foreclosure is a costly process and can have negative impacts on the homeowner's credit score.

States may require judicial foreclosure, in which lenders must take the borrower to court, non-judicial foreclosure, which does not take place in the court system, or a combination of procedures.

If the default is not cured, the lender will appoint a trustee to sell the home at a public auction. If the proceeds don’t cover the outstanding loan balance, it creates a shortfall that is called a deficiency. In some states, the lender writes off this amount, while in other states, the lender can sue the borrower to recover the deficiency.