What exactly is foreclosure? It is a legal process whereby a mortgagee or lien holder (the lender), gets a court ordered termination for the mortgagor's right of redemption. Most generally, a lender will obtain a borrower's security interest. The borrower will pledge an asset, such as their home for securing their loan. Should the borrower default on that loan, the lender would then try to repossess that property. There are courts of equity that are able to grant borrowers an equitable right to redemption, but only if they repay the debt.


As long as this equitable right is in place, the lender can't be positive that they can repossess that property successfully. So the lender will look at foreclosing on the borrower's equitable right to redemption. There can be other lien holders who are able to foreclose on that right of redemption to recover other debts, like unpaid contractor's bills, dues paid for the homeowner's association, overdue taxes, or assessments.


Keep in mind that lenders don't really want to foreclose. They're just in the business of mortgages, not property management. With this economy in the state it's in now, there's a good chance they'll get the property back rather than get their money.


Don't let this confuse you, lenders will ABSOLUTELY foreclose you your home if it's the only recourse they have, but it's usually a last resort. They'd much rather work something out with the home-owners to avoid taking foreclosure steps. Here are some things to do when avoiding foreclosure:


1. Catch Your Loan Up - The biggest cause of foreclosures is loss of income. It could be there's no way of catching your loan up. But if you're expecting a new income source in your future, you might benefit highly from getting a short term loan from family or friends.


2. Loan Modifications - Many home-owners don't contact the lenders because they don't know what to say, and some are embarrassed. Plus, they're unaware that the lenders might be able to help. Loan modifications are where a bank agrees to lower some of the principal or the interest, or sometimes the payments. But this process won't necessarily stop the ongoing foreclosure. Remember that communication is the best key to these situations.


3. Deed-in-Lieu of Foreclosure - Make sure you get this confirmed with your lender. This is where you give the home to your lender in exchange for a cancellation of your loan. Then the lender gives you a promise not to begin foreclosure proceedings, and they terminate your existing proceedings. This type of option allows you to walk away, it's quick and it's easy, done without a sale, and might hold you in better standing in regard to your credit rating. You should get this in writing and know what is planned as far as making any unpaid payments.


4. Foreclosure - Don't do anything and simply let them have the house back. This one has the most impact on your credit. Lenders can sue you for any unpaid amounts, as well as for the difference between the auction price and how much you owed.


5. Short Sale - Short sales are when third parties negotiate with lenders, to get them to accept a discounted price on what's owed, giving up their interest in exchange for cash. Sellers cannot benefit from this transaction. In these cases, real estate investors serve you better than realtors. Investors may buy the house, give the bank a purchase agreement at a discount, and help you get out of harms way.


If you find yourself behind with payments on your mortgage, and possibly facing foreclosure, then be sure you contact your lenders and maybe some real estate investors to see what actions you can take to avoid foreclosure.