Legal Definitions - foreclose

To foreclose means for a lender to legally take back or sell property that was used as collateral for a loan, because the borrower failed to meet the terms of their loan agreement, typically by not making required payments. This process ends the borrower's ownership rights to the property, allowing the lender to recover the money owed.

• Example 1: Residential Mortgage Default

  Maria purchased her family home with a mortgage from a local bank. After several unexpected medical emergencies, she fell behind on her monthly mortgage payments for six consecutive months. Despite attempts to work out a payment plan, she couldn't catch up.

  Illustration: The bank initiated legal proceedings to foreclose on Maria's home. This action would allow the bank to sell the property to recover the outstanding loan balance, thereby terminating Maria's ownership and right to live in the house.

• Example 2: Commercial Property Loan

  A small restaurant business, "The Daily Grind," took out a loan to buy its building. After a significant decline in customer traffic, the restaurant's income dropped, making it impossible to pay its commercial mortgage for three quarters in a row.

  Illustration: The commercial lender began the process to foreclose on The Daily Grind's building. This legal step aims to sell the property to recoup the unpaid loan amount, effectively ending the restaurant owner's legal claim to the building.

• Example 3: Home Equity Line of Credit (HELOC) Default

  John took out a Home Equity Line of Credit (HELOC) using his house as collateral to fund a major renovation project. Although he continued to pay his primary mortgage, he struggled to make the separate monthly payments on the HELOC due to unforeseen business losses.

  Illustration: The lender for John's HELOC could choose to foreclose on his house. Even though his primary mortgage was current, defaulting on the HELOC (which is also secured by the property) gives that lender the right to initiate proceedings to sell the house to recover their debt, thereby ending John's full ownership interest in the property.