What typically happens if a borrower fails to make mortgage payments?

When a borrower fails to make mortgage payments, the lender has the right to protect their financial interest by initiating foreclosure proceedings. Foreclosure is a legal process whereby the lender seeks to take possession of the property used as collateral for the loan due to the borrower's default. This action allows the lender to recover the outstanding balance of the loan by selling the property at auction.

Foreclosure is typically a last resort for lenders, as this process can be lengthy and costly. However, it is the standard course of action taken when borrowers do not comply with the terms of their mortgage agreement, particularly after a series of missed payments. Other options for borrowers in distress, like loan modifications or forbearance, may be available, but these depend on communication with the lender and can vary based on individual circumstances.

The other options do not accurately reflect the consequences of failing to make mortgage payments, as refinancing, extensions without penalties, or reductions in interest rates are not standard outcomes in such situations.