The foreclosure process as applied to residential mortgage loans is a bank or other secured creditor selling or repossessing a parcel of real property (immovable property) after the owner has failed to comply with an agreement between the lender and borrower called a “mortgage” or “deed of trust”. Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property.
When the process is complete, the lender can sell bank owned condos and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said that “the lender has foreclosed its mortgage or lien”.
If the promissory note was made with a recourse clause then if the sale does not bring enough to pay the existing balance of principal and fees the mortgagee can file a claim for a deficiency judgment.
Real estate owned or REO is a class of property owned by a lender typically a bank, government agency, or government loan insurer, after an unsuccessful sale at a foreclosure auction.
A foreclosing beneficiary will typically set the opening bid at a foreclosure auction for at least the outstanding loan amount. If there are no bidders that are interested, then the beneficiary will legally repossess the property.
This is commonly the case when the amount owed on the home is higher than the current market value of this foreclosure property, such as with a high loan-to-value mortgage following a real estate bubble. As soon as the beneficiary repossesses the property it is listed on their books as REO and categorized as an asset (non-performing asset).
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