- When a borrower defaults on a home mortgage loan and the lender initiates proceedings to take possession of the house and sell it to recover the debt. In an involuntary foreclosure, the borrower typically remains liable for the full amount of the debt. If the house sells for less than the amount the borrower owed on the mortgage, the borrower may still be required to pay the remaining balance.
Involuntary foreclosure is normally the last option for borrowers unable to pay their mortgages. Depending on the circumstances, a borrower may have alternatives, such as negotiating a temporary reduction in payments or refinancing the mortgage to obtain a lower payment. The borrower may also explore taking out a separate loan to repay the missed payments. If the borrower does not wish to remain in the house, it may be possible to negotiate a pre-foreclosure sale of the property to help minimize the damage to the borrower’s credit rating.
Investment dictionary. Academic. 2012.
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