What Happens During Foreclosure?

Foreclosure is the legitimate right of the lender to use the property as collateral in a situation when the borrower appears to not comply with the terms agreed in the mortgage contract. The rate of foreclosure was 1.16% in 2020, as reported by a recent study.

Understanding Foreclosure

The foreclosure process can vary from state to state, but the primary reason for the property to be subject to it is missed payments. Once the borrower fails to make payment, the lender will send them a payment notice. If the incident repeats itself, the lender will send the demand letter. If ever this has been neglected by the borrower, notice of default will immediately be sent to them, and it can grant them 90 days to settle their balance and have the mortgage reinstated.

The Process of Foreclosure

There are different processes of foreclosure in every state. Twenty-two states that include New York, Florida, and Illinois have a judicial foreclosure. In contrast, the other twenty-eight states, including California, Arizona, Texas, and Georgia, mainly use non-judicial foreclosure. Even though they might differ in some aspects, they have almost the same initial process that consists of the following steps:

Long-Due Balance

Missing payments that result in a huge amount of outstanding balance are the first step to foreclosure. Grace periods to settle your balance that the lenders can offer usually last only up to fifteen days. In the event of failure to meet the payment terms, late fees will be charged.


Continuous missing the mortgage payment will result in default. There are lenders that will view you as subject to default if you did not pay for thirty consecutive days, while others only require fifteen days. However, default rules vary from state to state.

If you were put into default, the next step would depend on your state law. Usually, mortgage agreements can be under judicial foreclosure if there’s no power of sale in it or if you’re under the state that only authorizes this type of foreclosure. At the same time, non-judicial foreclosure can occur if the power of sale is in your mortgage agreement and if you’re under the state that permits it.

Notice From The Law Office

Lenders may file a foreclosure lawsuit if your state is under the law of judicial foreclosure. If you happen to not respond to this, the judge will most likely give the default judgment to the lender. However, if you respond, a trial for the case may happen, and the judge can file a motion to make their decision if there is no genuine dispute that surrounds the foreclosure based on the material facts.
If you happen to be under the state with non-judicial foreclosure, certified mails will be sent to you issued by your lender. The notice of default will tell you your outstanding balance, such as the late fees, cost of foreclosure, and your missed installments. If you received the notice of default, you would be granted ninety days to make payments on all the outstanding balances you have, or you may also get in touch with your lender to have an agreement for your repayment.


The pre-foreclosure is the period between the default and sale of the property. If you’re already in this process, you don’t have to worry because you’re still the legal owner of the house. To avoid foreclosure, you can pay what you owe to your lender, or you may contact them to ask for guidance with various special payment methods or relief plans.

Sales Notice

Once you fail to make payments during the default notice period, your lender will eventually create the sales notice for the property. There are various platforms that your lender may use, such as the local newspaper, a poster outside your property, or online platforms. After that, your lender will set the date and time for the sale through an auction.

Moving Out From the Property

If your lender successfully sold the property, moving out from it is your only option. However, the time you need to leave the property still depends on the laws of your state.

Things to Know to Avoid Foreclosure

Avoiding foreclosure is the primary thing to put on your list if you’re a borrower. However, unexpected events may occur and make you struggle with your payments. When this happens, your property may be recovered by your lender. If you’re a borrower who missed your payment, don’t lose hope because there are still ways to avoid foreclosure. Some of these are the following:


Reinstatement is one of the most popular options to avoid foreclosure because you only need to catch up on your missed payments. If you’re the borrower, you can pay your balance during the reinstatement period. It includes the payments, interests, and penalties that you missed so you can continue the mortgage.

Short Refinance

When borrowing money from lenders for a property, you may experience financial difficulties that may result in missed payments and end up in foreclosure. In this case, you have an option to ask for help from your lender by the process of refinancing. It means that you may extend the term of the loan and get your interest rate lower.

Special Forbearance

Temporary financial struggles may happen to borrowers. Various circumstances may affect your income, such as emergency hospital bills, income decrease, or natural disasters that might affect you greatly. You can have an agreement with your lender to reduce or even suspend payments depending on the time you agreed to set.

Preventing Foreclosure in Your Properties

Foreclosure can severely affect your credit score as a borrower. It can stay in your credit report for over seven years. Negative events like missed payments can significantly damage your credit. Maintaining your credit score can be challenging if you experience sudden financial difficulties; that’s why you must keep in mind not to neglect any of the notices your lender may send. Furthermore, you also have to consider your income and a financial safety pillow and give yourself time to think before engaging in any loans.