What is Foreclosure
In exchange for a loan, the lender holds a lien (a legal claim or a “hold”) against the property. If the borrower does not make the stipulated payments, then the loan goes into default. The lender can then exercise the lien against the property. This is to take legal possession of the property, and then sell it to clear the debt. This process is called foreclosure.
A property is put as collateral for a loan or mortgage. When the borrower fails to make payment under the loan agreement, the creditor is entitled to repossess the property. This is usually done through an agent. The lender then sells it to get back the money he loaned to the borrower.
Foreclosure starts as soon as the first payment is missed.
NOTE: Defaulting on a payment can cause a serious drop in the borrower’s credit rating. Each sequential late payment continues to damage the rating, which in turn makes refinancing much more difficult. Lenders will often charge a penalty of around 5% for each payment deadline missed.
When a person falls behind on their mortgage payments and they have defaulted on their debt, the bank may foreclose.
It does this by filing a lawsuit in order to get a court order.
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