So if you don't pay your mortgage, the bank will send you notice of default and after being warned 3 times, you house is foreclosed.
Well, technically speaking, it isn't quite right. To understand the process and the relationship here, we will look at something called trustee sales because this is what's going to happen most of the time when you walk away from your mortgage payment.
When you borrow money from the bank, the bank makes you sign a note stating you owe this much money. However, a note isn't enough for the bank to give you the money. Like in the old days when people stop paying mortgage to the bank, the bank will have to take legal actions by bring the home owners to the court and let the judge decide what to do. This was usually a very lengthy process and the only winner from the court is lawyers. The bank lost, the home owner lost too.
Therefore in modern day real estate, the bank goes by trustee sales in case of non-payment of mortgage. The way it works is that in your real estate purpose, there is a power of sales clause that the bank has to have you sign before they will provide funding for you. This basically states that if you stop making the payment of mortgage, you will give permission to a trustee to sell your house and the money from the sales will be used to pay back what you owe from the banks. By signing the power of sales, you already grant permission to a third-party trustee to sell your house. Therefore, the bank never sells your home.
In this relationship, the home owner is called trustor, the person who is selling your home is trustee and the money from the sales will be paid to beneficiary, which is the bank in this case. This process is much more efficient and it avoids the court procedures, saving both parties time and money.
In your real estate exams, expect questions with this type of scenario where they ask you who is trustor, who is trustee and so on. It's not hard but can be tricky, you just have to make sure your logic is clear
