Oregon 30-Hour Real Estate Law Practice Test

What term is used when a lender sells a property at auction due to mortgage default?

1. Short sale

2. Foreclosure

3. Deed in lieu of foreclosure

4. REO sale

The correct answer is: Foreclosure

The term used when a lender sells a property at auction due to mortgage default is "foreclosure." This legal process allows lenders to recover the amount owed on a defaulted loan by taking ownership of the property and selling it to recoup their losses. In a foreclosure, the lender typically follows a series of legal steps to formally take possession of the property, which often culminates in an auction where the property is sold to the highest bidder. In contrast, a short sale involves the property being sold for less than the amount owed on the mortgage, with the lender's consent, often to avoid foreclosure. A deed in lieu of foreclosure is an arrangement where the borrower voluntarily conveys the property to the lender to satisfy the debt and avoid foreclosure proceedings. REO (Real Estate Owned) sale refers to properties that the lender has taken ownership of after a foreclosure and is now selling, but it does not describe the actual process of the lender selling the property at auction.