What happens if a mortgagor defaults on their payment?

When a mortgagor defaults on their payment, the lender has the legal right to take action to protect their financial interest in the loan. The correct response indicates that the lender may either sue for personal liability or initiate foreclosure proceedings.

Foreclosure is a legal process where the lender takes possession of the property that secures the mortgage loan because the borrower has failed to make the required payments. This process can vary by state and may involve a judicial or non-judicial process depending on local laws. In addition, if the borrower signed a recourse loan agreement, the lender may also pursue the borrower personally for the outstanding debt remaining after the foreclosure sale, which is referred to as personal liability.

The other options presented do not accurately represent the repercussions of a default. Immediate termination of the mortgage does not occur; rather, the lender has processes in place to address defaults. Filing for bankruptcy is not a typical response by lenders in the context of a mortgagor's default, as they may only seek to recover the loan amount through established legal mechanisms. Lastly, the idea of automatic repossession of the property is misleading; repossession does not occur without following legal foreclosure procedures.