Mortgage foreclosure refers to a process in which a lender takes a home or piece of property that was acting as collateral on a mortgage note. When a mortgage is granted, it is a secured loan, which means that if it is not paid, the lender can seize the property and sell it to recoup the losses from the non-payment of the loan. More than one type of mortgage foreclosure exists, with slightly different rules.
One type of mortgage foreclosure is a judicial foreclosure. This is often the most common type of foreclosure, and occurs when the lender must go to court to obtain a judgment of foreclosure. To obtain the judgment, the lender must prove the property owner owes the debt and has defaulted on the loan.
The second type of mortgage foreclosure is a non-judicial foreclosure. This type of foreclosure is permitted in some states within the United States. It occurs when a mortgage loan document contains a "power of sale clause" giving the mortgage lender the right to automatically foreclose on the home when a default occurs, without going to court. Upon sending the notice of default, the foreclosure occurs simultaneously, the deed to the property reverts to the possession of the lender, and generally the public notice of foreclosure and sale occurs simultaneously.
Regardless of which type of foreclosure occurs, the situation in which foreclosure occurs is similar. Generally, the property owner must be at least 30 days behind on his mortgage payment. The lender must have sent notification and/or a demand to pay, specifying the date by which payment must be received. The property owner must have failed to pay by the time specified in the demand for payment, thus defaulting on the loan.
When the lender seizes the property, either through a judicial or non-judicial foreclosure, the homeowner must leave the home. He also has a notice listed on his credit report that his home was foreclosed upon. This can make it difficult for him to obtain credit or loans in the future, and the notice of foreclosure stays on his credit report for ten years within the United States.
The lender normally aims to sell the home as quickly as possible when a mortgage foreclosure occurs. Often, this is done through a foreclosure auction in which the opening bid is equal to the amount still owed on the home. The lender receives first claim on the proceeds from the sale, and anything left over after the loan is paid and the lender's fees are satisfied is then paid to the homeowner.