An Explainer: Foreclosure

You bought a property three years ago, taking a loan of Rs 30 lakh. By an unfortunate play of events, you end up losing your job and are not in a position to pay off your loan now. At a time like this, what is the course of action your lender will take? The answer is foreclosure.  Foreclosure is basically the process of taking possession of a mortgaged property in case the borrower fails to pay the debt. When you take a loan to buy property, the said asset works as the collateral. This also amounts to the owner losing all his legal rights on the property. The general practice is that banks through a foreclosure process sell the property in the market and recoup the amount in case you default on your loan payment.

Despite the fact that foreclosure works as safety instrument for banks, such situations are not beneficial to either of the parties. To stop such a situation from arising, financial institutions go for a detailed property appraisal before granting loans. It is only after a detailed evaluation of the property that the future owners are granted the loan. Banks usually sell such properties through an auction process, at comparatively lower price in most cases.