What Does Foreclosure Actually Mean?

Foreclosure is the legal process by which a lender or lienholder (the "mortgagee") asks a court to completely terminate the interest of the owner ("the mortgagor") in the property. Those with specific mortgage questions should consult an attorney.

Mortgage Relationship

In a mortgage, the mortgagor gives the mortgagee an interest in his property to secure a loan. Should the mortgagor fail to pay as required, the mortgagee can institute foreclosure proceedings.

Foreclosure

Foreclosure typically means that a court either transfers the property's title to the mortgagee, or forces a sale of the property, with the proceeds paid to satisfy the mortgage debt. Any remaining proceeds go to the mortgagor.

Nonjudicial Foreclosure

When the mortgage instrument so stipulates and state law permits, the mortgagee may use "power-of-sale foreclosure," in which a trustee or public official sells the property at a public sale without involving a court. Power-of-sale foreclosure is less costly and complicated than judicial foreclosure, and authorized by law in most states.

Possession

Roughly half of the states in the United States forbid a mortgagee from taking physical possession of the property before actual foreclosure. However, many states do allow the mortgagee to take possession at any time.

References

• enotes: Foreclosure
• "Black's Law Dictionary (Seventh Edition)"; Bryan Garner (Editor); 1999
• Foreclosure University: What Is Foreclosure?
• "Property (6th Edition)"; James E. Krier, Michael H. Schill, Gregory S. Alexander and Jesse Dukeminier; 2006

Resources

• Bankrate: Foreclosures at a Glance