If you fall behind on several mortgage payments, your lender may begin the foreclosure process, which can lead to months of financial and emotional stress, and even result in the loss of your home.

Key takeaways

  • A foreclosure occurs when a lender takes control over a property from a borrower for failing to make timely payments.
  • A foreclosure might occur by court order or not, depending on the state the home is located in.
  • Several indicators precede the foreclosure, including a Notice of Default.
  • On average, a foreclosure takes 2.5 years to complete, but can take up to seven years.
  • A foreclosure can damage your credit score and result in loss of property.

What is a foreclosure?

A foreclosure is when a lender takes control of a property after the borrower misses several mortgage payments.

When you purchased your home and took out a mortgage, you agreed to a deal with your bank or lender. They gave you the financing upfront to pay for the home, and in return, you signed a contract agreeing to pay a specific amount each month for a set number of years.

If you start falling behind on your payments, or stop making your mortgage payments completely, the bank or lender can foreclose on the property and sell it as a way to make back the lost funds.

When you bought your house, you signed a mortgage contract specifying the amount of money you borrowed, as well as the interest rate and the details about your monthly payment.

However, living in your home does not mean you legally own it. If you have a mortgage, the bank or lender technically owns the property until you make your final mortgage payment.

Types of foreclosure

After you miss several mortgage payments, your lender can start the foreclosure process. The two main ways your home can be foreclosed on include:

  1. A judicial foreclosure, meaning the lender needs to get a court order.
  2. A nonjudicial foreclosure, meaning the lender does not need to get a court order.

The types of foreclosures that can occur depend on the state you live in and the terms of your mortgage. Some foreclosures involve legal action and others do not. The types of foreclosures include:

  • Judicial foreclosure: With a judicial foreclosure, the lender files a lawsuit and the borrower is notified of the non-payment. The homeowner has 30 days to make up the missed payments, otherwise the foreclosure process will proceed.
  • Power of sale: A power of sale foreclosure is allowed in some states if your mortgage has a power of sale clause in the contract. Once the borrower falls behind on their payments, their mortgage provider is allowed to put the house up for auction. A power of sale foreclosure is considered a non-judicial foreclosure because no legal action is taken.
  • Strict foreclosure: Strict foreclosures are less common because only a few states allow them. In this case, the mortgage lender files a lawsuit against the homeowner, and if the homeowner does not make up their payments within the court-ordered time period, the lender can seize the home.

Judicial foreclosure states

While judicial foreclosure is a standard procedure nationwide, some states only allow this foreclosure approach and do not allow power of sale or strict foreclosures. The states that only allow judicial foreclosures include:

  • Connecticut
  • Delaware
  • Florida
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Nebraska
  • New Jersey
  • New Mexico
  • New York
  • North Dakota
  • Ohio
  • Oklahoma
  • Pennsylvania
  • South Carolina
  • Vermont
  • Virginia
  • Wisconsin

Non-judicial foreclosure states

States that allow both types of foreclosure—judicial and non-judicial—include:

  • Alabama
  • Alaska
  • Arizona
  • Arkansas
  • California
  • Colorado
  • Georgia
  • Hawaii
  • Idaho
  • Maine
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Mississippi
  • Missouri
  • Montana
  • Nevada
  • New Hampshire
  • North Carolina
  • Oregon
  • Rhode Island
  • South Dakota
  • Tennessee
  • Texas
  • Utah
  • Washington
  • West Virginia
  • Wyoming

Foreclosure process: How does foreclosure work?

Each state has its own laws pertaining to the foreclosure process and foreclosure sales. These laws can govern the borrower’s relief options if already in foreclosure, how to go about posting a Notice of Sale, the sale timeline and other parts of the process.

Step 1: Missed mortgage payments

If your mortgage payment is a few days late, you are probably not at risk of foreclosure. Your lender may have a grace period of up to two weeks for you to make your payment without serious penalties. After the grace period, however, your payment is considered late and you’ll be charged late fees. You might also receive a warning from your lender about a potential foreclosure if you fail to make the payments.

Step 2: Notice of Default

After three to six months of missed mortgage payments, your lender will file a Notice of Default with the local recorder’s office. Your lender will also send one to you via certified mail, and depending on your state, might post the notice on your front door. This notice specifies how much you owe to bring your mortgage back into good standing.

A Notice of Default could show up on your credit report and affect your score. This can make it more challenging to obtain other types of credit or refinance your mortgage.

A Notice of Default doesn’t equate to the lender immediately foreclosing on your home, and it doesn’t mean you don’t have options to prevent the foreclosure from happening. You can stop the foreclosure proceedings by getting current on your payments.

Step 3: Preforeclosure

Preforeclosure is the time between the Notice of Default and the auction or sale of your home. During this time, if you can pay the amount specified in the Notice of Default, you can stop the foreclosure process from going any further. The exact amount of time you have depends on your state. During preforeclosure, you might also have the option to sell your home and pay back the money owed, in what is called a short sale.

Step 4: Notice of Sale

If you don’t have the money to bring your mortgage into good standing within the allotted time frame, your lender will file a Notice of Sale. Then, your home will be placed up for auction at a specified time and location.

How the Notice of Sale is published depends on your state. For example, in North Carolina, the notice must be published in a local newspaper and posted on the door of the local courthouse. In California, it must be posted on the property, as well as a public place in the county.

Because the Notice of Sale is public information and has been advertised, several buyers, including investors, might be interested in buying your home. Depending on laws in your state, you might have the ability to exercise right of redemption (meaning you can reclaim your home) up until the foreclosure sale, or even after.

Step 5: Eviction

Following the auction and sale of your home, you’ll generally have a few days to gather your belongings and move to a new residence. If you do not voluntarily move out, law enforcement personnel are legally allowed to remove you and your belongings from the premises.

How long does foreclosure take?

As of the first quarter of 2023, the average foreclosure in the U.S. took 950 days, or about two-and-a-half years, according to ATTOMs. In some states, the foreclosure process took four years, and some took nearly seven years.

However, you are allowed to remain in your home while the foreclosure process plays out. Once the house is sold, you must vacate the property. If you refuse, you’ll receive an eviction notice and law enforcement will remove you and your belongings from the home.

How to avoid foreclosure

Ultimately, avoiding foreclosure starts by communicating with your mortgage lender or servicer. It is unlikely that your lender will let you off the hook completely, but it can help you take action so you do not lose your home.

Some of the best ways to avoid a home foreclosure include:

  • Take advantage of forbearance programs: You can apply for forbearance if you have a federally-backed loan from Fannie Mae or Freddie Mac.
  • Adjust your loan terms: If you are struggling to afford your monthly loan payment, ask your lender if they can modify your loan terms. In exchange for a longer amortization schedule, you might be able to lower your monthly payment.
  • Get a deed-in-lieu of foreclosure: Some states allow homeowners to choose a deed-in-lieu of foreclosure, in which you agree to turn over your home to your lender to avoid foreclosure. With this option, you don’t need to pay your mortgage, but you might still be responsible for paying the difference between your home’s value and the mortgage balance.
  • Set up a repayment plan: If you know that you are unable to make your mortgage payment for a given month, let your lender know as soon as possible. Your lender might set up a payment plan that involves more frequent, but lower payments, or deferral for a month or two.

FAQ about foreclosure

  • For one, getting a mortgage after foreclosure can be challenging because of the impact on your credit score and the fact that you’ll likely need to endure a waiting period before applying for a new loan. Other consequences of foreclosure include:
    • Losing your home, which puts you in the position of having to find a new place to live with a foreclosure on your record
    • Damage to your credit, since a foreclosure stays on your credit report for seven years
    • Losing your property and equity, which can have far-reaching impacts on your overall wealth
    • Owing money on the remaining balance if it’s a judicial foreclosure, and being subject to litigation, wage garnishment and more if you can’t pay
  • If you receive a Notice of Default, reach out to your lender immediately to discuss your options. You can still avoid foreclosure at this stage. It’s in a lender’s best interest to work with borrowers to help them stay in their home and catch up on payments. This is because foreclosure is a costly process, and when homes are sold through this approach, the lender is likely to receive far less money than what you owe on the loan.
  • The U.S. Department of Justice provides a list on its website of legal assistance providers that are either free or low-cost.

    If you’ve reached this stage in the foreclosure process, it’s also important to think about whether defending the foreclosure to keep your home is the best choice for your financial picture.

Bottom line

As soon as you realize you can’t pay your mortgage, reach out to your lender or servicer to learn about the mortgage relief options available to you. They might be able to set up a payment plan or allow you to defer the payment for one month if you have a temporary financial hardship.