Foreclosure
The legal process by which a lender seizes a property when a borrower defaults on a mortgage.
What is Foreclosure?
Foreclosure is the legal process through which a mortgage lender takes possession of a property after the borrower fails to make required payments. In a judicial foreclosure state, lenders must go through the courts; in non-judicial states, they can proceed through a faster "power of sale" process. Foreclosure typically begins after 3–6 months of missed payments and can take months to years to complete depending on the state. Foreclosure severely damages credit — the entry remains for seven years — and the borrower may still owe a deficiency balance if the property sells for less than the loan amount.
Example
A homeowner misses three consecutive mortgage payments. Their lender files a notice of default, triggering the foreclosure process. If payments are not cured within the redemption period, the home is sold at auction, typically at below-market prices.