What is a Foreclosure?

Save Your HomeIf money is borrowed for the purchase of a home, and the home is security for the promissory note evidencing the loan, then the debt is usually referred to as a mortgage.  These types of debts usually come with several different obligations owed by the borrower to the lender.  First, the borrower must pay the lender according to the terms of the note.  Second, the borrower must keep the home insured, which protects the lender’s collateral.  There are other requirements as well, but these two are arguably the most important.  Failure to pay the mortgage payments or to keep the property insure are defaults on the terms of the note and default is usually followed by foreclosure of the property.

To foreclose on real property is to seize the collateral, or home, and give it to another party.  Generally what happens is that the property is sold at a foreclosure sale and the money left after paying the cost of the sale is paid towards the amount owed under the note.  If there is an amount still owed on the mortgage after the proceeds of the sale are applied to the note, then there may be a mortgage deficiency.  Whether or not a mortgage deficiency exists largely depends on the state in which the foreclosure took place.  Each state has its own rules about whether a mortgage company can collect a debt remaining after a foreclosure sale from the borrower.  However, that issue is outside the scope of this article.

In Texas, foreclosure sales take place on the first Tuesday of each month.  They usually take place on the courthouse in the county in which the property is located.  Sometimes there is no one interested in bidding on the property.  In this situation the mortgage company will often bid on the property in order to prevent the foreclosure process having to be performed again.  When this happens the mortgage company takes ownership of the property.