Foreclosure is a legal proceeding where a lender takes possession of the assets used as collateral for the loan from the borrower; this happens after the borrower stops making payments for the loan. These assets are then sold by the lender to recover the balance of the loan that the borrower failed to repay.
Foreclosure is generally associated with mortgages; however, it is actually used in any form of loan repayment dispute where an asset was put up as collateral. When a borrower fails to live up to the obligations set forth in the loan contract, the property put up as collateral is repossessed. When a borrower misses the loan payment deadline agreed upon in the loan contract, they are often given a grace period. If the borrower fails to make a payment during the grace period, the lender then starts the foreclosure process.