Foreclosure

Foreclosure is a legal process in which a lender recovers the balance of a loan that is in default by forcing the sale or transfer of the property pledged as collateral. It is most common with real estate mortgages, though it can apply to other secured loans. The process is governed by applicable law and the terms of the loan agreement.

Typically, foreclosure starts after a borrower misses payments and the lender declares the loan in default. A notice of default or equivalent filing is issued, and a cure or reinstatement period may be offered to bring the loan current. If the debt remains unpaid, a foreclosure sale or transfer of title to the collateral is scheduled.

Methods vary by jurisdiction. Judicial foreclosure involves a court proceeding to authorize the sale, while non-judicial foreclosure uses a power of sale clause in a mortgage or deed of trust and proceeds without court involvement. Some regions also provide redemption periods after a sale.

Proceeds from the sale are distributed to cover fees, taxes, and the outstanding loan balance. If the sale does not cover the full debt, a deficiency judgment may be pursued. Foreclosure can seriously affect credit scores and remains on credit reports for several years; tenants may be displaced after ownership changes.

Borrowers may pursue alternatives to foreclosure, such as loan modification, forbearance, short sale, or deed in lieu of foreclosure. Early communication with the lender and knowledge of local laws can help identify options and timelines.