Foreclosure is the proceeding in which a lender is granted a court-ordered termination of a borrower’s right of redemption (which is essentially the right to make good on one’s debts). In the case of residential mortgage foreclosures, the mortgagee, usually the bank or some other creditor, attempts to sell or repossess a property that has not been paid for in compliance with the original deed of trust (in other words, the borrower has defaulted on their loan). During this process, the court can grant the borrower a continuance on their right of redemption if the borrower pays the outstanding debt.

‘Acceleration’ is the term used to describe the lender’s legal right to declare the whole debt on the borrower’s mortgage payable at once. Mortgages may also have an acceleration clause calling on the borrower to notify the lender should there be any transfer of lease, title or interest on a property – if they fail to do so, they will be subject to acceleration. For lender’s that have granted mortgages without this clause, there are only two available options: either the lender can wait until all the borrower’s payments come due, or else attempt to convince a court to allow the sale of some portion of that property that roughly equals the amount owed. This is why virtually all mortgages these days have built-in acceleration clauses.

Often borrowers (also called mortgagers) have to pay Private Mortgage Insurance for as long as the amount owed on a mortgage is more than four fifths of the property’s value. In most instances, the PMI in combination with the money from the foreclosure auction will be enough to ensure that the lender will have some significant amount of the loan returned to them. If, however, there is no such insurance, and the lender’s losses will not be covered, the court can enter a deficiency judgment against the mortgager, giving the lender the right to sell other items of the mortgager’s property should the mortgager be unable to pay the difference.

There are several different types of foreclosure, two of which are the most frequently used. These are foreclosure by judicial sale, and foreclosure by power of sale.

The first is essentially the selling of the mortgaged property under court supervision. The proceeds go firstly to pay off the rest of the mortgage, secondly to satisfy debts to any other lenders to whom the borrower is indebted, and lastly (if anything is left) to the borrower.

Power of sale foreclosure, by contrast, calls for the selling of the property, with no court supervision, by the lender, which, due to the lender’s vested interest in the sale, usually proves quicker than judicial foreclosure (though the proceeds are parsed up in exactly the same way).

Another, less widespread form of foreclosure is strict foreclosure, which, if the mortgager fails to pay their debt within the period specified by an initial, post-default court order, grants the lender full title to the property with no obligation to sell it. In centuries past this was the most widespread method of foreclosure, but it has since been confined to cases in which the appraised value of a given property is less than the debt owed on it.

Either of these processes can move quickly or with glacial slowness depending on the state, country or court through which they are directed, and the legal tactics used by each party in attempting to prove its case as the valid one (as has been seen recently in the United States with high numbers of contested foreclosures succeeding due to shortfalls in lenders’ paperwork). Short sales, alternate financing, refinancing or even the declaration of bankruptcy can provide mortgagers with ways to avoid the negative credit-rating implications of a foreclosure.