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Foreclosure Definition: Process and Timeline Explained

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When you get a mortgage to buy your home, the new roof over your head becomes collateral for the loan you’re repaying. If your circumstances change and you struggle to pay back the loan, your lender can ultimately take ownership of your home. That’s the definition of foreclosure.

Let’s take a closer look at what a foreclosure is and how the process works. In this article, we’ll cover:

Foreclosure defined: What is it?

A foreclosure is when a lender repossesses a home after the borrower fails to make the agreed-upon monthly mortgage payments. In some states, the lender must go to court to file a lawsuit to foreclose on a property. In others, a lawsuit isn’t necessary. When your home is foreclosed, you must move out and you no longer own the property.

Breaking down the foreclosure process

Now that you have the definition of foreclosure, let’s discuss how a homeowner ends up in foreclosure.

When you first took out your mortgage, you signed a promissory note indicating that you would make all payments owed to your lender. If you fail to repay the loan, your lender has the right to take possession of your home and sell it to recoup the money they invested.

Foreclosure laws vary by state, but you typically have to be 120 days, or four mortgage payments, behind on your loan before the foreclosure process begins.


There are two types of foreclosure: judicial and non-judicial. If you live in a state with judicial foreclosures, your lender has to go to court to start the foreclosure process. Lenders don’t have to sue to repossess a home in non-judicial foreclosure states, which can speed up the process.

Understanding the financial consequences of foreclosure

Foreclosure severely impacts your credit profile and can prevent you from buying a home for several years.

The hit your credit score takes from a foreclosure depends on where it stood before the foreclosure was added to your credit report. For example, if you had a 780 score before, your score could fall to as low as 620 — a 160-point drop — after you lose your home, according to data from FICO.com.

You’ll also have a waiting period before you can qualify to buy another home, which can range from two to seven years, depending on the loan program. Here’s a look at those waiting periods:

How soon can I get a mortgage after a foreclosure? 

Loan program  Waiting period 
Conventional 7 years
FHA 3 years
VA 2 years
USDA 3 years

In cases of extenuating circumstances, such as a job loss or a sudden increase in medical expenses, your waiting period may be shortened. Check with your lender for more details.

How to avoid foreclosure

Lenders bear the financial brunt of a foreclosure, and typically prefer to avoid the process when possible. To help borrowers who might struggle repaying their mortgage, some lenders offer mortgage assistance to keep you in your home. If you fall behind on payments, reach out to your lender to see how they can help. Here are some foreclosure prevention options your lender might offer:

  • Forbearance. A mortgage forbearance arrangement means your lender agrees to temporarily reduce or suspend your payments until you recover from a temporary hardship. Once you can resume your normal mortgage payments, you’ll catch up by either paying a lump sum or spreading out the past-due amount over time by adding a portion of it to your monthly payments until it’s repaid.
  • Modification. A mortgage modification allows you to modify the original terms of your loan, such as extending your loan term or reducing your interest rate, to make your loan more affordable.
  • Mortgage release. Also known as a deed-in-lieu of foreclosure, a mortgage release is when you voluntarily transfer ownership of your home to your lender and are released from the mortgage and monthly payments.
  • Short sale. A short sale transaction is when you sell your home for an amount that’s less than your loan’s principal balance. Your lender may forgive the difference between the sales price and what you still owe on the mortgage.

The bottom line

Going through foreclosure can be a devastating and discouraging experience, especially because you’ll lose your home, see a major drop in your credit score and have to wait several years before you can qualify to buy another home.

Remember that it works in your favor to contact your lender as soon as you think you might miss a mortgage payment. Communicating early and often can help you avoid having your home foreclosed.


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