What Is a Foreclosure Sale?

If a borrower falls behind on a mortgage payment, the bank can take steps to sell the home at a foreclosure sale.

By , Attorney · University of the Pacific McGeorge School of Law

A foreclosure sale occurs when the bank exercises its "lien" rights and sells a home at auction. When a borrower takes out a mortgage, the bank obtains a lien, an ownership interest in the property. The lien helps protect against a significant loss by allowing the bank to foreclose on the house and sell it at auction if the borrower stops making the agreed-upon payment and "defaults" on the loan.

However, the lien doesn't allow the bank to sell the home at a foreclosure sale immediately after a default. Instead, a home lender must follow federal and state foreclosure laws.

A judicial procedure starts when the lender files a lawsuit in court. If the bank wins, the court will order the home sold at a foreclosure sale. If the bank uses a nonjudicial procedure, it will follow steps outlined in state law.

In most cases, the lender must notify the borrower of the default, give the borrower a short amount of time to bring the account current and notify the borrower of the foreclosure sale date. After completing the steps, the bank can proceed with the foreclosure sale without court approval.

If you'd like to learn about foreclosure law in your state, read State Foreclosure Laws.

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