Foreclosure
Definition and meaning of Foreclosure in real estate.
Foreclosure is a legal process through which a mortgage lender takes possession of a property and sells it to recover the outstanding balance on a defaulted loan. This action is initiated when the borrower fails to make their mortgage payments as agreed in the loan contract.
In more detail
The specific foreclosure procedure varies by state, but it generally begins after the borrower falls behind on payments for several months. Lenders will issue a formal notice of default, giving the homeowner a chance to pay the missed amount or negotiate a loan modification. If the debt remains unpaid, the lender schedules a foreclosure sale, where the property is auctioned off to the highest bidder.
If the property does not sell at auction, the lender takes ownership of it, and the home becomes bank-owned, which is also known as real estate owned.
Key facts
| Category | Mortgages & Financing |
|---|---|
| Initiated by | The mortgage lender or servicer |
| State variation | Can be judicial (court-ordered) or non-judicial (trustee sale), depending on state law |
| Alternative options | Short sale, deed in lieu of foreclosure, or loan modification |
After a homeowner loses their job and goes several months without paying the mortgage, the lender files a notice of default to start the foreclosure process on the property.
Frequently asked questions
How long does the foreclosure process take?
The timeline varies by state and can range from a few months to more than a year, depending on whether state law requires a judicial court process.
Can you stop a foreclosure once it has started?
Homeowners can often halt foreclosure by paying the outstanding balance, successfully applying for a loan modification, or selling the home through a short sale before the auction occurs.
Related terms
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Sources & references
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