What is Foreclosure?

What is foreclosure on a home loan? In basic terms, when a someone buys a house, they sometimes need to borrow money from a bank to do so. The bank expects the money to be paid back timeously and to a schedule, and the loan payments are usually made on a monthly basis. The money paid back includes interest. The interest on the mortgage loan is how the banks make money and stay in the money lending business.

The borrowed money is called a mortgage loan and the loan contract contains a lot of terms and conditions to protect the bank and the home owner. One condition is that if the homeowner fails to make their mortgage loan repayment, regardless of why, the bank has a right to terminate the loan, and sell the house in order to get their money back. Typically this is known as foreclosure.

Technically, foreclosure isn't limited to home ownership but can include repossession of any collateral that has been offered to secure a loan. However in the ailing global economy these days, it is most commonly used to refer to the repossession of property that has been offered to secure a mortgage loan.

The current economic climate has caused many people to find themselves in a situation where they can't repay their loan for whatever reason (eg they got laid off), and the threat of foreclosure hangs over many innocent people these days. What is even worse is that in many cases the value of the home itself has dropped and people are losing life savings that they put into their homes, in the foreclosure process. That is why it is extremely important to understand foreclosure, and how to mitigate or prevent it.

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