A mortgagee in possession (MIP) is a lender that has formally taken possession of a property because the borrower has defaulted on the mortgage. Possession gives the lender the right to manage the property (including collecting rent on tenanted property) and ultimately to sell it to recover the outstanding loan balance.
Becoming mortgagee in possession is a deliberate legal step that follows a default and the expiry of any cure periods. The process is governed by the loan documents and the relevant state property legislation. Once in possession, the lender owes duties to the borrower (and any subsequent secured parties) to obtain a reasonable price on sale and to account for the proceeds.
For borrowers, MIP is a serious consequence of default that typically wipes out equity once selling costs and accrued interest are paid out from the sale proceeds. For lenders, it is a last-resort enforcement tool used when the borrower has not been able to engage on a workout. Most defaults in private credit are resolved short of MIP, by refinance, restructure, sale-by-borrower, or extension. MIP is the path of last resort, not the default response to a default.