Mortgage & Home Loans

What is Foreclosure?

Foreclosure is the legal process a lender uses to take and sell your property when you stop making mortgage payments. It starts when you miss payments and violate the loan contract.

Foreclosure laws differ by state. Judicial foreclosure requires court approval; non-judicial foreclosure uses a power-of-sale clause. The CFPB requires lenders to wait until you're 120 days past due before starting foreclosure, giving you time to explore options.

If you're facing foreclosure, you may be able to negotiate a loan modification, request forbearance, do a short sale, or transfer the deed to the lender. Foreclosure stays on your credit report for up to seven years.

Quick Facts

Legal Trigger TimelineLenders must wait until 120 days delinquent under CFPB rules

Foreclosure TypesJudicial (court-ordered) and non-judicial (power of sale)

Credit Score ImpactRemains on credit reports for up to 7 years

Mitigation AlternativesLoan modification, forbearance, short sale, deed-in-lieu

PRACTICAL EXAMPLE

You lose your job and miss four mortgage payments. After 120 days, the lender issues a notice of default and starts the foreclosure process. Your $200,000 home could be sold at auction to recover what you owe.

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RELATED TERMS

Learn More Key Concepts

MortgageA loan secured by real estate that you pay back in regular installments over a set term.

EscrowA neutral holding account managed by a mortgage servicer to collect property taxes and homeowners insurance for annual payment.

RefinancingThe process of replacing an existing mortgage with a new one under different interest rates or terms.

LTV RatioA lending risk assessment ratio calculated by dividing the outstanding loan balance by the property's appraised value.

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