What happens to the homeowner's equity in a foreclosure?

In a foreclosure, the homeowner’s equity can be either partially or completely wiped out. Equity is the difference between the market value of the property and the amount of money owed on the mortgage. In a foreclosure sale, the total amount of the homeowner’s equity is taken by the lender to pay off the outstanding mortgage balance. In Wisconsin, the law requires that lenders must provide homeowners with a redemption period during which borrowers have the right to pay off the entire amount owed on the mortgage and stay in the home. If the borrower does not use this period to pay the balance, the property then goes to the foreclosure sale where the highest bidder wins the home. In this situation, the homeowner loses any equity they had in the property since the sale proceeds are used to pay off the entire mortgage balance. In rare cases, the foreclosure sale does not cover the full balance of the outstanding debt and the lender must then seek additional funds from the borrower. This is known as a deficiency judgment, which allows the lender to seek payment from the borrower for any remaining balance not covered by the foreclosure sale. The borrower is then responsible for paying that amount off to the lender. In conclusion, when a home is foreclosed upon, the homeowner’s equity is usually wiped out.

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What happens to the homeowner's equity in a foreclosure?

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