Definition
Foreclosure is the legal process by which a lender takes possession of a property when a borrower fails to make mortgage payments. It is the final step in the default process and results in the borrower losing their home. The foreclosure process varies by state but typically involves missed payments, notices, auction, and eviction. A foreclosure stays on a credit report for up to seven years and severely impacts credit scores.
Example
Foreclosure Timeline Example
After missing 3-6 months of mortgage payments, a lender may initiate foreclosure. The borrower typically receives a notice of default giving them 30 days to cure the default. If not resolved, the property is scheduled for auction. In some states, this can happen in as little as 60 days; in others, it may take over a year. Once sold, the borrower must vacate the property.