What is "foreclosure"?

Study for the CFPB Mortgage Compliance Test. Learn with detailed quizzes and flashcards. Understand the key concepts, regulations, and guidelines with comprehensive explanations. Get ready to ace your exam!

Foreclosure is accurately defined as the legal process by which a lender takes possession of a property when the borrower fails to meet their mortgage repayment obligations. This process typically occurs after the borrower has defaulted on the loan, leading the lender to initiate legal action to reclaim the property used as collateral for the mortgage. The foreclosure process allows the lender to auction the property or sell it to recover outstanding debts.

This definition distinguishes foreclosure from other concepts related to mortgages. Modifying a loan's terms is aimed at making the loan more manageable for the borrower, assessing property value focuses on determining how much a property is worth in the current market, and strategies to assist borrowers with late payments are designed to help individuals avoid default. All these processes aim to maintain the borrower’s ability to keep their home, whereas foreclosure represents the transition to losing possession of the property due to non-payment.

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