What is meant by foreclosure?

Foreclosure refers to a legal process in which a lender takes ownership of a property due to the borrower's failure to make the required loan payments. When a homeowner defaults on their mortgage, the lender has the right to initiate foreclosure to recoup their financial loss. This process typically involves the lender seeking to sell the property at auction or through other means to recover the outstanding debt.

Understanding foreclosure is important within the context of personal finance as it highlights the risks associated with borrowing and property ownership. By being aware of what foreclosure entails, individuals can better assess their financial situation, make informed decisions regarding mortgage payments, and understand the potential consequences of financial mismanagement.