Which term describes the legal proceedings that occur when a borrower defaults on their loan?

The term that describes the legal proceedings occurring when a borrower defaults on their loan is the foreclosure process. This legal action is initiated by the lender to reclaim the property that secures the mortgage loan when the borrower fails to make the required payments. During foreclosure, the lender typically files a lawsuit, and if successful, the court allows the lender to auction off the property to recover the outstanding debt.

The process begins with notifications to the borrower and can lead to the sale of the home, usually at a public auction. This is a significant aspect of real estate and finance, as it protects the lender's investment while also providing a legal means to handle defaults.

Other terms and practices involve different situations. Mortgage restructuring refers to modifying the terms of an existing mortgage to make it more manageable for the borrower but does not involve legal proceedings initiated by the lender. Bankruptcy filing is a legal process aimed at helping individuals manage their debts overall, but it does not specifically address the loan default by allowing the lender to reclaim the property. Loan modification is similar to mortgage restructuring; it involves changing the terms of the loan but does not directly relate to the legal actions taken in the case of default. Therefore, in the context of default and property reclamation, the foreclosure process is the