Business Glossary

process by which a homeowner who has not made timely payments of principal and interest on a mortgage loses title to the home. The holder of the mortgage, whether it be a bank, a savings and loan, or an individual, must go to court to seize the property, which may then be sold to satisfy the claims of the mortgage.

legal proceeding initiated by a creditor to take possession of collateral securing a defaulted loan. Some states allow lenders to reclaim property by simply declaring the borrower has defaulted, a process known as strict foreclosure. Most states, though, require lenders to file a foreclosure suit and obtain a judgment before seizing and auctioning off a borrower's property. Proceeds from a foreclosure sale are applied first to pay off the mortgage debt and foreclosure expenses, with the remainder, if any, going to the borrower. A borrower in default has the legal right, in most states, to redeem his property, called the right of redemption , by paying the lender the balance of the outstanding debt, plus out-of-pocket expenses.

termination of all rights of a mortgagor or the grantee in the property covered by a mortgage. Statutory foreclosure is effected without recourse to courts but must conform to laws (statutes). Strict foreclosure forever bars equity of redemption. The foreclosed property may be sold to satisfy a debt. If a foreclosure sale fails to repay the debt, the creditor may obtain a deficiency judgment .

a termination of the equity of redemption of a mortgagor or the grantee in the property covered by the mortgage . statutory foreclosure is effected without recourse to courts, but must conform to laws (statutes). judicial foreclosure submits the process to court supervision.

Example: The lender forecloses to gain possession of mortgaged land after the borrower missed 3 payments.