Foreclosure
National Real Estate Exam glossary · Financing
Definition
The legal process by which a lender, following a borrower's default, forces the sale of the secured property to satisfy the debt. Judicial foreclosure proceeds through the courts; nonjudicial foreclosure, available under a deed of trust with a power-of-sale clause, proceeds out of court.
Foreclosure in plain English
When you borrow money to buy a house, you promise the lender they can take the house if you stop paying — that safety net is what makes them willing to lend you so much in the first place. Foreclosure is the lender actually cashing in that promise: after you fall behind ("default"), they force the house to be sold and use the money to pay off what you owe. There are two paths — 'judicial' means the lender goes through a courtroom and a judge signs off, while 'nonjudicial' skips court because you already signed paperwork (a deed of trust with a 'power-of-sale' clause) agreeing they could sell it directly. Think of it like a pawn shop: you left the house as collateral, and if you don't repay, they sell your item to get their money back.
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