When mortgage payments fall behind, the lender may ultimately take steps to foreclose. Sometimes the best course is to seek temporary relief in the United States Bankruptcy Court. Since the mortgage is a “secured” debt, it cannot be discharged in bankruptcy. The filing of a bankruptcy petition triggers an automatic federal court order temporarily staying (suspending) any pending foreclosure sale. With the additional time provided by the stay, the defaulting borrower can often make arraignments to sell the real property for a much higher price than would be obtained in a foreclosure sale.

Essentially, a foreclosure sale involves sale of the real estate at public auction. The proceeds of the sale are then applied against the debt owed on the mortgage. Any funds remaining after the mortgage (and the foreclosure costs) are paid will be transferred to the defaulting borrower. What happens when the proceeds of the auction sale are insufficient to pay off the mortgage and/or the foreclosure costs depends on the law where the property is located.