When a borrower takes out a commercial or residential loan, the property being bought or refinanced acts as security for the loan. This collateral gives the lender additional protection. In case the borrower defaults by missing payments, the lender can foreclose on the property to sell it and use the proceeds to pay the outstanding debt.
What is foreclosure?
Foreclosure is the process of repossessing the property from a borrower who defaults on their mortgage. While failure to make several monthly payments remains the most common reason for default, there are other less common types of default. For example, lenders typically require borrowers to keep their property in the same condition and form as it was during the loan application process. However, some borrowers may overlook this requirement, and do major renovations of their properties without consulting with the lender first. Though their payments are up to date, these major improvements can still be grounds for default.