What does "foreclosure" mean in the context of real estate?

Foreclosure refers specifically to the legal process through which a lender takes possession of a property when the borrower has failed to make required mortgage payments. This process usually involves the lender initiating legal action to reclaim the property, and it can lead to the sale of the property to recover the unpaid debt. During foreclosure, the borrower loses their rights to the property, and the lender can subsequently sell it, often through a public auction or other means, to recover the outstanding loan amount.

The correct understanding of foreclosure is not simply about selling the property (which could occur as part of the process) or transferring ownership through closing, but rather the specific legal implications of defaulting on a mortgage and the subsequent legal procedures that allow the lender to reclaim the asset. This legal framework is intended to protect the lender's financial interests while also adhering to regulatory guidelines that govern the process.