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What is Foreclosure?

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In the movie Field of Dreams, the main character, played by Kevin Costner, plows under his Iowa cornfield in order to build a baseball field. The only problem is the bank, which threatens to take back the family's house and land (and baseball field) unless Costner's character can make his monthly loan payment. This plot is a good picture of foreclosure: the bank takes back (or sells to a third party) the property that a borrower guaranteed as security on a loan.

This foreclosure process is made possible through a mortgage (or in some states, a Deed of Trust). The mortgagor (borrower) signs the mortgage in favor of a mortgagee (lender). The borrowers own the property, but in order to get the loan, they have to put up the property as security.

When the borrower does not make his payments on the loan, the mortgage entitles the lender to begin foreclosure procedures. The lender notifies the borrower of its intent to foreclose, lists the amount of money due, and then completes either a judicial or non-judicial foreclosure. Foreclosure proceedings differ slightly from state to state; for example, not all states all non-judicial foreclosures.

After the lender serves notice to all interested parties and waits the appropriate length of time, it can hold a public foreclosure sale. At this sale, the lender can take back the property or be outbid by a third-party buyer who then pays his bid price directly to the lender. The original mortgagor must vacate the property or face eviction, and in many cases, the lender can still come after the mortgagor if the borrower owes additional funds.

Sadly, foreclosures are increasing in the United States as people are unable to make payments on their large loans. Everything from poor budgeting to a lost job can lead to foreclosure. To the lender, a foreclosure is a means to recover a loan via the resale or repossession of the property. To the borrower, a foreclosure is a devastating event that he will desperately try to avoid.

Next Page: Preventative Measures to Avoid Foreclosure

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