What is Foreclosure: Definition, Process, Downside and Ways to Avoid Foreclosure

Anbarasan Appavu

In the foreclosure legal process, a lender takes ownership of a mortgaged property and then sells it in an effort to recoup the money that is still owed on a loan that has been defaulted on by the borrower. Default occurs when a borrower fails to make a certain number of the required monthly payments; however, it can also occur when the borrower fails to meet other terms that are outlined in the mortgage document.

A legal process known as foreclosure enables loan providers to recoup the money they are owed on a loan that has been defaulted upon by seizing ownership of the mortgaged property and then selling it.
What is Foreclosure and Ways to Avoid it

The process of foreclosure can vary from state to state, but in general, lenders will attempt to work with borrowers in an effort to help them get caught up on payments and avoid foreclosure.

In the most recent period of time, the national average number of days required to complete the foreclosure process was 857; however, the duration of the process can vary greatly from state to state.

You can also read our other article about What is Default?

Understanding Foreclosure

The mortgage or deed of trust contract serves as the legal basis for the foreclosure process. This type of contract grants the lender the right to use a property as collateral in the event that the borrower fails to abide by the terms outlined in the mortgage document. The process of foreclosing on a home typically starts when the borrower defaults on at least one of their mortgage payments or misses at least one of them. However, the specifics of the procedure can vary from state to state. After that, the creditor will send a notice of missed payment, which will state that the payment for the previous month has not been received.

Understanding Foreclosure

If the borrower is late with two payments, the lender will send a demand letter to the borrower. This is a more serious matter than a notice of a missed payment, but the lender may still be willing to work out a plan for the borrower to make up for the missed payments.

You can also read our other article about What Is a Lease and Different Types of Leases

After three months of missed payments, the lender will send a notice of default to the borrower. When this happens, the loan is turned over to the foreclosure department of the lender, and the borrower typically has another thirty days to make up any missed payments and get the loan back into good standing (this is called the reinstatement period). If the homeowner has not made up for the missed payments by the time the reinstatement period comes to an end, the lender will start the foreclosure process.

A foreclosure will be reported on the borrower's credit report within a month or two of the first missed payment, and it will remain there for seven years from that date. After that, the borrower's credit report will no longer include a record of the foreclosure.

 You can also read our other article about Why Renting Could Be Better Than Buying

The Procedure for Foreclosure Is Different in Each State

Each state has laws that govern foreclosures, including the notices that a lender is required to post publicly, the homeowner's options for bringing the loan current and avoiding foreclosure, and the timeline and process for selling the property once it has been foreclosed upon.

After a drawn-out period of pre-foreclosure proceedings, the actual act of a lender seizing a property, known as a foreclosure, is typically the final step. Before initiating the foreclosure process, the lender may present the borrower with a number of options that can help the borrower and the seller mitigate some of the adverse effects that will be caused by the foreclosure.

 You can also read our other article about House-Buying Guide for New Home Buyers

Judicial foreclosure is the norm rather than the exception in 22 states, including New York, Florida, and Illinois. When this stage of the process has been reached, the lender must present evidence to the court that the borrower is in default in order to obtain permission to foreclose on the property. If the bank's request to foreclose on the property is granted, either the local sheriff will hold an auction to try to recoup the money that is owed to the bank, or the bank will become the owner of the property and try to recoup its losses by selling the property in the traditional manner.

The foreclosure process in the other 28 states, including Arizona, California, Georgia, and Texas, is predominately handled through nonjudicial foreclosure, also known as power of sale. This method of foreclosing on a property is typically much quicker than a judicial foreclosure, and it does not involve the judicial system at all unless the homeowner sues the lender.

 You can also read our other article about Saving Your Home From Foreclosure

How Long Does Foreclosure Take?

According to the U.S. Foreclosure Market Report compiled by ATTOM Data Solutions, a provider of property data, the average amount of time spent in the foreclosure process for properties that were foreclosed on during the second quarter of 2022 was 922 days. This information was derived from the properties total number of days spent in the process. This is up 34.5% from the previous quarter's average of 685 days, which was 685 days. The average for the previous quarter was 930 days, so this is a slight decrease from that.

The standard number of days varies from state to state due to the various laws and procedures that govern the foreclosure process. In the second quarter of 2021, the following states had the longest average number of days for properties that had been foreclosed: Hawaii (3,068 days), New York (1,822 days), and Indiana (both with 1,822 days) (1,617 days)

The following three states had the shortest average times to foreclose during the same time period: Wyoming (173 days), Arkansas (253 days), and Tennessee (270 days)

The following graph illustrates, beginning with the first quarter of 2007, the average number of days between mortgage default and foreclosure filing.

You can also read our other article about What is Loan Modification

Is There Any Way to Stop a Foreclosure?

It is possible for a borrower to avoid foreclosure even if they have skipped one or two payments on their mortgage. The following are some other options

Ways to Stop Foreclosure


During the reinstatement period, the borrower has the opportunity to get back on track with the mortgage by paying back what they owe before a certain date. This includes any missed payments, interest, and penalties that may have been incurred.

Short refinance

A short refinance is a type of refinancing in which the new loan amount is lower than the outstanding balance. The difference between the two amounts may be forgiven by the lender in order to assist the borrower in avoiding foreclosure. It is better to approach short refinance from lenders such rocket mortgage, mr cooper (Home Loan and Refinance) and freedom mortgage.

You can also read our other article about Being Ready to Buy a House?

Special forbearance

If the borrower is experiencing a temporary financial hardship, such as mounting medical bills or a drop in income, the lender may be willing to reduce or suspend the borrower's payments for a predetermined period of time.

The Consequences of Defaulting on a Mortgage

In the event that a property does not sell during a foreclosure auction, or if it otherwise never went through one, then the lender, which is typically a bank, will typically take ownership of the property and might even add it to an accumulated portfolio of foreclosed properties, also known as real estate owned (REO).

The websites of financial institutions typically make it simple to search for and find properties that have been repossessed. These kinds of properties can be appealing to real estate investors because, in some instances, financial institutions sell them at a price that is lower than their current market value. This, in turn, has a negative impact on the lender.

A foreclosure will show up on the credit report of the borrower within a month or two of the first missed payment, and it will remain there for seven years from the date of the first missed payment. When the foreclosure has been removed from the borrower's credit report after seven years has passed.

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