What Are the Stages of the Foreclosure Process?

The exact steps of foreclosure for missing payments vary by state

foreclosure sign in front of a house.
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If you’re struggling to make mortgage payments and have missed one or more, you may be wondering what it’s like to go into foreclosure, as a last resort. The mortgage foreclosure process is a long and drawn-out one, and the exact steps vary from state to state. 

In some states, foreclosure requires a court hearing, and borrowers have the chance to contest the action and even raise defenses. In others, the bank can foreclose on the property without any judicial intervention. 

Hearing or not, a foreclosure action can cause you to lose your home. It can also have a long-lasting impact on your credit score. 

Stages of Foreclosure

The exact foreclosure process is different in each state, but generally, you can expect it to look something like this:

  • Default and notice of default
  • Foreclosure filing and trial
  • Notice of sale and sale of property
  • Eviction

Not all borrowers will go through each of these steps. A foreclosure filing and trial are only necessary in states where a judicial hearing is required.

Default and Notice of Default

The first thing that happens in the foreclosure process is that you enter into default. “Default” essentially means you’re late on your mortgage payments—what most lenders refer to as being delinquent.

Law dictates that a lender must reach out to a borrower once he or she is 36 days behind on mortgage payments. By 45 days, the lender must provide written notice of the default, including details about any loss mitigation or repayment options the borrower may be able to use.

A borrower has to be at least 120 days behind on his or her mortgage for the lender to start the foreclosure process legally.

If you receive a notice of default, it’s important to contact your lender or servicer to discuss potential options as soon as possible. You may be able to modify your loan, get on a repayment plan, ask for a short sale, or surrender your property in lieu of foreclosure.

Foreclosure Filing and Trial

If you’re in a judicial foreclosure state, the next step is the foreclosure filing. The lender will file a foreclosure lawsuit against the borrower, also called a “complaint.” In some states, lenders need to prove that they offered the borrower loss-mitigation options before filing suit. 

The foreclosure suit will go before the court, and borrowers have a right to contest their foreclosure and raise their own defenses. If the court rules in favor of the lender, the property can be scheduled for sale.

Notice of Foreclosure, Sale 

In nonjudicial foreclosure states, there is no trial. Lenders simply issue a “notice of intent to foreclose,” alerting the borrower that the foreclosure process has begun. They will also need to advertise the sale—usually in a newspaper, for at least a few weeks prior to the scheduled sale date.

The actual selling of the property is done via auction, and usually by the local sheriff’s department. In many cases, banks and lenders are forced to purchase the properties back due to a lack of buyer interest. 

These are then dubbed “bank-owned properties” or “real estate-owned properties” (REOs), and the lender then makes efforts to sell those directly to a buyer. Many banks and larger financial institutions list their REO properties somewhere on their website.

Unfortunately, being evicted from your home isn’t the only downside of a foreclosure. Borrowers who have been foreclosed on will also see their credit score fall, and the foreclosure will remain on their credit report for up to seven years. 

Eviction

Once a foreclosed property has been sold, the former homeowner must vacate the premises. If he or she doesn’t, the new buyer legally can have them evicted from the home. The exact process for getting someone evicted varies by state.

Key Takeaways

  • The foreclosure process varies by state. In some states, it may involve a court proceeding.
  • Lenders are required to send borrowers notice of their intent to foreclose, as well as potential loss-mitigation solutions that can help them avoid foreclosure. They will need to make contact when by the time you’re 36 days overdue for a payment.
  • Per rules from the federal Consumer Financial Protection Bureau (CFPB), you must be at least 120 days behind on your mortgage to have your home foreclosed on.
  • Once your home is foreclosed on, you will be evicted from the property. The eviction process also varies by state.

Article Sources

  1. Federal Housing Finance Agency. "An Overview of the Home Foreclosure Process." Page 6. Accessed March 26, 2020.

  2. Consumer Financial Protection Bureau. "Foreclosure Avoidance." Accessed March 26, 2020.