What Is the Definition of Mortgage Foreclosure?

In a foreclosure, a house is usually sold through auction.

Mortgage foreclosure is a procedure aimed at terminating an owner's right to property. When a homeowner stops paying his mortgage, his lender will repossess the property and sell it to recover its money. Depending on the state and type of mortgage, a foreclosure can be judicial or non-judicial.

Before Foreclosure

After not receiving payments for several months -- with the exact period varying from state to state -- the bank sends a notice to the homeowner stating how much is owed, how much is required to "cure" the debt, and when the mortgage will be stopped.

Right to Redeem

After receiving the notice, the homeowner still has time to make the payments, including penalties and foreclosure proceeding costs, and keep the property. In some states, this right is extended even after the foreclosure date.

After Foreclosure

Once a mortgage is foreclosed, the bank puts the property on sale, usually through auction. When the property is sold, the bank gets some or all of its money back and, at least theoretically, if there is any money left over, it goes to the homeowner.

Judicial Foreclosure

In those states where the house buyer receives a deed of trust, his bank can start foreclosure proceedings without going to court. In others, especially when it looks like the amount owed is greater than the current value of the property, it is necessary to file a suit against the borrower and force the sale of the property with a court order.

References

• ERate: Foreclosure Process and Types
• The Free Dictionary: Foreclosure
• Financial Web: Non-Judicial Foreclosure Explained

Resources

• Foreclosure Process Information: How the Foreclosure Process Works