The foreclosure process can take anywhere from a few months to several years, depending on the circumstances and the state and local laws that apply. Here's what you need to know.
What Is Foreclosure?
Foreclosure occurs when a lender seizes property that's been financed through a mortgage loan after that loan goes unpaid for a certain period of time. How long can vary by jurisdiction, but typically no fewer than 120 days (more on that below). Mortgage loans require collateral in the form of the home they're used to purchase, which means the lender has the right to claim the property and sell it to recoup money lost when the borrower fails to make their loan payments.
Foreclosure Can Take Months or Years
The length of the foreclosure timeline can vary greatly, but the milestones in the process are fairly consistent:
- First missed payment: After the first mortgage payment is missed, the lender begins reaching out to the borrower, encouraging them to get their payments back on track.
- Mortgage default: If the loan goes 90 days past due (that is, after the borrower has missed four consecutive monthly payments), the mortgage is considered in default.
- Notice of default: The lender typically issues a notice of default, indicating its intention to foreclose, when the loan becomes 90 days past due. Typically, the notice indicates legal foreclosure will begin in 90 days unless the borrower brings their payments up to date. (This marks the beginning of the period known as preforeclosure.)
- Initiation of foreclosure: If the borrower fails to get their payments back on track, the lender petitions the relevant court to begin foreclosure and the court appoints a trustee to oversee the auctioning of the property. Here is where the foreclosure timeline can vary the most:
- In jurisdictions that allow nonjudicial foreclosures, filing necessary documents with the court is essentially all that's needed to get the process moving, and foreclosure can often be completed within months. (In West Virginia, the state with the fastest process as of the first quarter of 2021, the average foreclosure took just 48 days.)
- Other jurisdictions require judicial foreclosures, in which each step of the process requires court approval, and court-calendar backlogs often delay these procedures. Some states have homeowner protection laws and require mediation between lender and homeowner that further prolongs the proceedings. In Arizona, the state with the lengthiest process as of the first quarter of 2021, the average foreclosure took more than five years.
- Foreclosures were delayed nationwide for much of 2020 and 2021 by a federal moratorium intended to prevent Americans from losing their homes due to financial hardship related to the COVID-19 pandemic. The most recent extension of that moratorium expires June 30, 2021.
- Notice of trustee sale: For several weeks before the auction, in accordance with local laws, the trustee posts signs in public places and publishes notices in local newspapers, describing the property and its location and specifying when it will be auctioned.
- Auction: The trustee puts the property up for auction, setting a minimum bid based on the property's appraised value, the remaining balance on the mortgage, and any unpaid tax bills or other liens associated with the property. The highest bidder who meets or exceeds the minimum bid takes ownership of the property.
- REO: If no one meets the minimum bid, the foreclosed property becomes what's known as real estate-owned (REO), or under the ownership of the lender. REO properties are offered for sale as-is, and often can be had at below-market prices.
- Notice of eviction: As soon as the property is sold at auction or taken over as REO by the lender, the occupants are issued an order to vacate the property if they haven't already. If they don't leave within a specified period (72 hours, for instance) law enforcement officials typically escort them off the property, impound any belongings they leave behind, and lock up the property on behalf of the new owners.
How Does a Foreclosure Affect Credit?
A foreclosure is a major negative entry in your credit report. It can lower your credit score considerably and limit your ability to qualify for credit or new loans for years afterward.
A foreclosure entry remains on your credit report for seven years from the date of the first missed payment that led to the foreclosure. After that, it must be removed from your credit report by law. You cannot get an accurate foreclosure removed from your credit report before that time is up, but if a foreclosure entry persists longer than seven years, you can file a dispute with the credit bureaus to have it removed.
A foreclosure on your credit reports will cause your credit scores to drop, but as with all negative credit report entries, its exact numerical impact depends on several variables, including what your score was before foreclosure and how many other negative entries there are on your credit report. Missed payments have a major negative effect on your credit scores, for instance, and because a foreclosure typically occurs only after you've missed four mortgage payments in a row, your credit scores may have declined so significantly by the time the foreclosure entry appears that your score may not have many more points to lose.
When your finances have been affected to the point that you worry foreclosure may be in your future, there are ways to prevent it. Reach out to your lender as soon as possible (ideally, before you miss a payment). They may be able to offer you relief in the form of forbearance, which pauses your payments for a period until you're able to resume them. Relief from your lender may help you stay in your home and save your credit from severe damage in the process. Selling your home is another potential option.
The Bottom Line
The amount of time required for completion of foreclosure varies significantly depending on the laws that apply where the process takes place. No matter how long it may take, the end result—loss of home and major damage to your credit—means it's a process you'll want to avoid if at all possible.
