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What is Foreclosure?

The Promissory Note document that a homebuyer signs at the loan closing meeting is a promise to pay the mortgage loan. Foreclosure is the legal process of taking a property from a borrower who is not complying with the terms of this agreement.

In a foreclosure, the home is sold to pay the outstanding mortgage loan debt. Foreclosure actions will appear on the borrower’s credit report and will affect the borrower’s ability to obtain mortgage financing in the future.

A Sad Story

Click the Sad Story link to read about a situation that might have ended in foreclosure.

Problems and Solutions

In general, lenders will solve the problems that lead to foreclosure, only when both the lender and the borrower will benefit or have something to gain. Selecting the best method to avoid foreclosure depends on whether the problem requires a temporary or a permanent solution. Click the tabs to see examples of each.

Using the right method helps lenders avoid high foreclosure costs such as:

• Court fees
• Attorney fees
• Home repair costs
• Real estate sales commissions

Homeowner's Responsibilities

It is important to communicate with your lender and explain any situation that will cause a late or delinquent mortgage payment. Contacting your lender in advance will increase your chances of finding a solution to either temporary or permanent problems and avoid foreclosure.

Check Your Learning

Now you'll have a chance to relate events in the story about the Mitchells to the methods for avoiding foreclosure. Follow the steps below to reinforce your learning.

You now understand the temporary and permanent solutions you can apply to avoid foreclosure when problems arise. Can you image a situation where you might need to choose such a solution?

If so, you now know that the key to success in avoiding foreclosure is communicating with a lender before foreclosure action is necessary.

Click Next to review what you have learned in this lesson

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