Definition: Foreclosure is a legal process wherein the lender tries to recover the balance of a loan from the homeowner (borrower), who defaults the payment of the mortgage, by making the forceful sale of the asset used as collateral against the loan.
In other words, a legal right of the lender to forfeit the homeowner’s (borrower) right to property because of the non-payment of the mortgage is called as a foreclosure. A lender is entitled to begin the foreclosure when the borrower despite lender’s intimation, defaults the mortgage payment for more than three to six months. After that, lender brings a court order, called as a foreclosure order in which the time limit is granted to the borrower within which he must pay the entire loan balance along with the foreclosure expenses.
In case, the loan balance is not paid within the stipulated time period; then the property held as collateral security is sent for the auction. The lender is under obligation to sell the property at its fair market price. Once the property is sold, then lender keeps the amount due to him and pay the remainder amount, if any, to the borrower. But, in case the property is not sold through auction, then it becomes the property of the lending institution.