What is a foreclosure, and how does it occur?

A foreclosure is fundamentally defined as a legal process in which a lender takes possession of a property because the borrower has failed to make the required mortgage payments. When a borrower defaults on their loan, which typically means they have missed a number of scheduled payments, the lender has the right to initiate foreclosure proceedings to recover the outstanding balance on the loan. This process usually involves the lender filing a lawsuit and, ultimately, a court judgment allows them to repossess the property to sell it and recover the indebted amount.

The context of the correct answer emphasizes the sequence of events that leads to foreclosure, detailing how it serves as a remedy for lenders who need to recoup their investment when borrowers do not uphold their financial obligations. Understanding the foreclosure process is crucial for anyone involved in real estate or loan origination, as it affects both borrowers and lenders significantly.