Buying a home with a mortgage means that the mortgage payments have to be paid every month. When the homeowner defaults on the loan, the lender may move to foreclose on the property. Foreclosure is a procedure that allows a lender to recover the money involved in the mortgage loan. A mortgage is a secured loan with the property being used to secure the loan. This means that if the borrower defaults, the lender can publicly file a default notice. The procedure now enters a period known as pre-foreclosure.

During the pre-foreclosure period the homeowner has two options. He can make up the arrears in his mortgage payments. The laws allow for a grace period and this differs from state to state. Check the laws in your state to determine how long this pre-foreclosure, or grace, period is. If the borrower brings his payments up to date he can then reinstate the mortgage and the payments go on. The second option open to the borrower is to sell the home during the grace period and use the proceeds to retire the mortgage loan. This way protects the borrower's credit record since he won't have a foreclosure listed for seven years.

If the borrower does nothing, at the end of the grace period, the lenders then has two options that he can exercise. The lender can sell the property at public auction. The borrower loses his property and has a foreclosure showing on his credit record. If they don't follow this route, the lenders can take over ownership of the property. The lender may work out these details with the borrower during the pre-foreclosure period. If not, the borrower will have to move out of the house and let the bank take possession. Most foreclosed properties are sold at auction so the lender can recover the money that he has loaned.

When faced with a potential foreclosure situation, the best thing the borrower can do is to work with the lender to try to resolve the situation. Provide the lender with whatever financial information they request. Be honest with them and try to solve the problem. This isn't the time to make your self scarce and not answer the phone. If there are going to be problems with the monthly payment, it is best that the lender hears about it first from the borrower. It makes a difference if the lender knows the borrower is seriously trying to work out the problem.