Foreclosure is the forced sale of a property owned by the borrower in order to satisfy the debt(s) secured by the property. Foreclosure laws are complex, and they vary from state to state. There are no federal laws governing foreclosures. The borrower is the legal owner of the property who has entered into a mortgage agreement with a lender to pay back all borrowed money, fees and interest due.



The Mortgage is a security instrument that pledges the property as the security for the loan. This document provides the lender the ability to force the sale of property to satisfy the debt if the borrower fails to pay in accordance with the terms of the agreement. The lender does not own the property; they merely own a lien on the property which can be exercised to force a sale to satisfy the debt. At the time of a sale, all proceeds first go to settling this indebtedness before any residual "equity" goes to the seller.

Foreclosures are always public auctions where the lender must notify the general public in advance, and the general public must be allowed to bid on the property. This public auction is necessary to prevent the lender from forcing the borrower to sell the property at a below market price to the lender who could then resell it for a profit on the open market.

Lenders do not want to own real estate. Lenders are in the business of loaning money and collecting fees and interest. At a foreclosure auction the lender will generally bid on the property up to the value of the loan. This ensures auction bids will be high enough to satisfy the outstanding loan amount. The lenders do not want to be the highest bidder. They would rather someone else bid over the loan amount and make them whole. If they end up being the highest bidder, then they must manage the property and ultimately arrange for its sale in the non-auction real estate market. There are costs and fees associated with this endeavor which eats in to the final disposition amount garnered from the final sale of the property. These fees generally increase the loss for the lender.