Foreclosure is the legal process a lender initiates in order to reclaim ownership of property when the borrower fails to make payments according to the loan terms. The foreclosure procedure basically terminates the rights that the borrower was granted through a mortgage. Foreclosure essentially gives the lender the legal right to take over the property title from the borrower so the property can be sold and the lender can earn back all or some of the loan proceeds.

In order to accomplish this, a lender must initiate a judicial procedure through the courts to obtain a judgment allowing the foreclosure and sale.

Mortgage Foreclosure: A mortgage is a legal contract in which the borrower secures a loan by using the property as collateral. When the borrower fails to make payments, the lender is forced to take legal action to collect the amount due. The lender will typically send multiple notices to the borrower requesting information about the missed payments in an attempt to work with the borrower to bring the loan current. When these efforts fail, the lender will hire an attorney to initiate foreclosure.

At this stage, the attorney will file several legal documents including a lis pendens, which is a public notice indicating legal action is pending on the property. If the borrower fails to respond to the complaint, the attorney submits a report to the court with the facts of the case. The judge will then issue a Judgment of Foreclosure in favor of the lender and grant the borrower an additional period of time, (usually 6 months), to pay the loan in full. This additional time given to the borrower to repay the loan is called the redemption period. During the redemption period, the borrower is usually very motivated to sell the property in order to pay off the loan. If the borrower is unable to pay the loan during the redemption period, the court will order the property sold to the highest bidder at a sheriff sale. Most sheriff sales result in the property being transferred to the lender because no one is willing to bid on the lender's loan balance if it exceeds the value of the property.