It depends on the kind of mortgage and loan the individual has, but the essential chain of events is this:Arthur Dent wrote:How exactly does forclosure work? Does the bank just have to take the house and slam your credit rating, or can they try to come after your savings in court?
Bank gets a judgment saying Man owes $500,000 (example) to the bank because he defaulted on payment. The loan was secured by Man's house (collateral)
Bank forecloses on Man's house. Bank takes possession of the house in order to sell said house to satisfy the debt owed by Man. If Bank sells house for more than the remaining balance of the debt, any excess proceeds go to Man, and everything's "hunky dory." If Bank sells house for less than the remaining balance of the debt, Man still owes the difference between the sale proceeds and the full value of the debt. This can be pursued against other assets owned by Man (again, depending on the type of loan).
The real kicker is when Bank puts the house up for sale, and then Bank buys the house for less than full value, so they have possession of the house (which they were supposed to get anyways) AND Man still owes them the difference. There are safeguards to protect banks from being able to do this behind closed doors, but it can and does happen.
There's more to it than that, but generally that's how it works.
