Foreclosure

What does foreclosure mean?

Foreclosure is the lender's remedy when a mortgage goes unpaid, typically after several missed payments. The process and timeline vary by state, but it ends with the lender taking and selling the property, and it severely damages the borrower's credit for years. If you are struggling, contacting the servicer early about forbearance, a loan modification or a short sale almost always beats letting it reach foreclosure.

The foreclosure timeline

Foreclosure is a process, not a single event. Under federal servicing rules a servicer generally cannot make the first legal filing until a borrower is more than 120 days behind, which leaves time to apply for help. If you submit a complete loss-mitigation application early enough, the servicer must evaluate it before moving to a sale.

After that, the path depends on your state. In judicial states the lender must go through the courts, which can take a year or more; in non-judicial states a trustee can sell the home under the deed of trust in a matter of months.

Alternatives, and the long tail

• Forbearance or a repayment plan for a temporary hardship.
• A loan modification that permanently lowers the payment.
• A short sale or deed-in-lieu, which end the debt with less credit damage than a completed foreclosure.
• Selling the home yourself while you still have equity.

A foreclosure stays on your credit report for seven years. Waiting periods before a new mortgage are typically seven years for a conventional loan, three for FHA or USDA and two for VA, with exceptions for documented extenuating circumstances.