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Foreclosure process

Foreclosure

In short

Foreclosure is the legal process a lender uses to take back and sell a property after the borrower stops making mortgage payments, so the lender can recover what it is owed.

Who starts it
The lender or loan servicer
Typical timeline
A few months to 2+ years
Two main types
Judicial and non-judicial
Possible outcomes
Auction sale or bank-owned (REO)

How foreclosure works

Foreclosure begins after a borrower falls behind on a mortgage or deed of trust. After a period of missed payments, the servicer sends formal notices, and the case moves into pre-foreclosure. If the debt is not resolved, the property is sold at a foreclosure auction. If no outside bidder buys it, the lender takes ownership and the home becomes bank-owned (REO).

Federal servicing rules generally prevent a servicer from making the first foreclosure filing until a borrower is more than 120 days delinquent, which gives owners time to apply for alternatives.

Judicial vs. non-judicial

States use one or both of two procedures. In a judicial foreclosure, the lender files a lawsuit and a court oversees the sale. In a non-judicial foreclosure, a trustee sells the property under a power-of-sale clause without going to court. Judicial foreclosures usually take longer.

Notice requirements, timelines and redemption rights all vary by state, so check the rules where the property is located.

Ways a foreclosure can end

What it means for buyers

Foreclosed homes can be bought at three points: from the owner during pre-foreclosure, at the auction, or from the bank afterward. Each stage has different risks. Auction purchases are usually cash, as-is and without an interior inspection, while bank-owned homes can typically be financed and inspected.

Example

A foreclosure from missed payment to REO

An owner owes $210,000 and stops paying in January. By May, after more than 120 days of missed payments, the servicer starts foreclosure. In a non-judicial state, a notice of default is recorded, then a notice of trustee sale sets an auction date several months later. At the auction, the lender places a credit bid of $210,000. No outside bidder goes higher, so the lender takes title and later lists the home as an REO property for $235,000.

Foreclosure vs. Pre-Foreclosure

Foreclosure

Foreclosure is the legal process a lender uses to take back and sell a property after the borrower stops making mortgage payments, so the lender can recover what it is owed.

Pre-Foreclosure

Pre-foreclosure is the period after a lender files a default notice or foreclosure lawsuit but before the property is sold at auction. The owner still holds title and can sell or catch up.

The differencePre-foreclosure is the early stage after a default notice when the owner still holds title and can sell or catch up. Foreclosure refers to the whole legal process, which ends in a sale.

Frequently Asked Questions

Related terms

Foreclosure AuctionForeclosure processA foreclosure auction is the public sale of a property after a borrower defaults, where the highest bidder buys it, usually with cash and as-is. If no one outbids the lender, it becomes bank-owned.REO / Bank-Owned PropertyForeclosure processAn REO (real estate owned) or bank-owned property is a home a lender took back after it failed to sell at foreclosure auction. The lender then sells it, usually through a real estate agent.Judicial ForeclosureForeclosure processA judicial foreclosure is a foreclosure that goes through the courts: the lender sues the borrower, a judge orders the sale, and the property is auctioned, often by a sheriff or court officer.Non-Judicial ForeclosureForeclosure processA non-judicial foreclosure is a foreclosure carried out without a lawsuit. A trustee sells the property at auction under the power-of-sale clause in the deed of trust or mortgage.Short SaleForeclosure processA short sale is the sale of a home for less than the amount owed on its mortgage, with the lender's approval. The lender agrees to accept the reduced proceeds to avoid a foreclosure.Notice of DefaultForeclosure processA notice of default (NOD) is a public notice, recorded with the county, stating that a borrower has fallen behind on a mortgage or deed of trust and that the lender may move toward foreclosure.Deficiency JudgmentForeclosure processA deficiency judgment is a court ruling that makes a borrower personally liable for the remaining mortgage debt when a foreclosure sale brings in less than the amount owed.Right of RedemptionForeclosure processA right of redemption lets a foreclosed homeowner reclaim the property by paying the full amount owed, either before the foreclosure sale or, in some states, for a set period after it.

Learn more in the knowledge base

What Is a Pre-Foreclosure? How the Stage Works for BuyersGuide · 7 min readPre-foreclosure is the window between a lender starting foreclosure and the home being sold at auction. The owner still holds title and still has options, so any purchase is a negotiation with the owner rather than a bid or a bank sale. This guide explains how the stage starts, how it ends and how it compares with auctions and bank-owned homes.How Foreclosure Auctions Work: A Guide for First-Time BiddersGuide · 8 min readA foreclosure auction is the public sale where a lender's collateral is sold to repay a defaulted loan. Rules on notice, payment, title and redemption are set by state law, and buyers usually pay cash for a home they have never been inside. This guide explains how the process works so you know what you are bidding on.What Is a Bank-Owned (REO) Property? A Buyer's OverviewGuide · 6 min readA bank-owned, or REO, property is a home the lender took back after a foreclosure auction failed to attract a high enough bid. Lenders usually clear title and list these homes through agents, which makes them the most accessible type of distressed property for most buyers. They are sold as-is, though, and often need work.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.