Foreclosure is a legal procedure by which a borrower's rights to a mortgaged property may be ceased because of failure to maintain mortgage payments. The lender can acquire ownership of the property for which the loan was originally issued in case the borrower fails to live up to the obligations agreed to in the loan contract. The lender may foreclose on the loan and declare the entire debt that is due. Foreclosure is commonly conducted by a court-decreed sale of the property to the highest bidder, who is often the lender. The highest bidder has the right to sell the property at public auction and collect the debt from the proceeds. When the process is complete, it is typically said that "the lender has foreclosed its mortgage or lien."

Foreclosure procedures differ from area to area. Individuals involved in the financial claims against the property such as second mortgages, mechanic's liens, judgments, etc. do not get compensated at all. Also, if the auction results in gaining additional money than required to pay the foreclosed loan, back taxes and legal costs, whatever is remaining would then go to the original owner. Usually, the mortgage holder can start foreclosure anytime following a default on the mortgage. Foreclosure via a judicial sale involves selling the mortgaged property under the supervision of a court. In this case the proceeds will first be used to satisfy the mortgage, and then to satisfy other lien holders, and finally to the mortgagor. Similarly, if the sale of the property is done by the mortgage holder without the court's supervision, proceeds from the sale go first to the mortgage holder, then to other lien holders, and finally to the mortgagor.

A foreclosure property can be bought from the offending property owner before it is auctioned out, or by buying a pre-foreclosure deal or buying at the auction. In case nobody bids, the lender becomes the owner of the property. Foreclosure investing can be very profitable.

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