{"id":161227,"date":"2023-10-26T16:15:45","date_gmt":"2023-10-26T22:15:45","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=161227"},"modified":"2024-02-28T13:56:55","modified_gmt":"2024-02-28T20:56:55","slug":"what-is-a-foreclosure","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/what-is-a-foreclosure","title":{"rendered":"What is a Foreclosure? The Complete Guide"},"content":{"rendered":"\n\n      <iframe loading=\"lazy\" frameborder=\"0\" height=\"200\" scrolling=\"no\" src=\"https:\/\/playlist.megaphone.fm\/?e=BIGPOC4554076773\" width=\"100%\"><\/iframe>\r\n  \n\n\n\n\n<p>\u201cForeclosure\u201d can be an ominous word in real estate, and the process can feel a little murky, since it varies from state to state. Savvy real estate investors should understand foreclosures in case they face foreclosure themselves or are interested in the investment opportunity foreclosed properties offer.&nbsp;<\/p>\n\n\n\n<p>This guide will explain what is a foreclosure, steps you can take to prevent a foreclosure, and how foreclosed properties can be part of your real estate investing strategy.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is a Foreclosure?<\/h2>\n\n\n\n<p>Foreclosure is a legal process where a lender takes ownership of a property from the borrower after the borrower fails to make multiple loan payments.&nbsp;<\/p>\n\n\n\n<p>In a mortgage loan, borrowers agree to make monthly payments to pay off the property&#8217;s principal, interest, and taxes. When borrowers miss multiple payments, the lender will begin the foreclosure process to take back the property, since it\u2019s legally theirs. Typically, lenders will repossess the property and then sell it to recoup what is owed on the mortgage.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Reasons for Foreclosure<\/h2>\n\n\n\n<p>There are multiple reasons why a borrower may get caught in a foreclosure, including:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Increasing debt outside the mortgage&nbsp;<\/li>\n\n\n\n<li>A lost job, being laid off, or quitting a job<\/li>\n\n\n\n<li>Medical disability that forces the homeowner to stop working<\/li>\n\n\n\n<li>Job transfer to another region\/state<\/li>\n\n\n\n<li>Excessive repair\/renovation issues becoming too costly<\/li>\n\n\n\n<li>Divorce or family disruption surrounding homeowner(s)<\/li>\n\n\n\n<li>Other life disruptions that impact a borrower\u2019s finances<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Process of Foreclosure<\/h2>\n\n\n\n<p>The foreclosure process varies slightly from state to state, but here are the main stages of foreclosure that apply to most cases:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">1. Missed payment<\/h3>\n\n\n\n<p>Foreclosure starts when borrowers begin missing payments. Most lenders have a grace period for borrowers to make a payment without penalty. After this grace period, the payment will be considered late, and the lender will send the borrower notice that they\u2019ve missed a payment on the loan and may be at risk of late fees and even foreclosure.&nbsp;&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">2. Notice of default<\/h3>\n\n\n\n<p>After three to six months of missed payments, the lender will issue a notice of default with the local recorder\u2019s office and send a copy to the borrower. The notice states how much the borrower owes on the loan and that they have 30 days to pay the money owed in order to get back into good standing.&nbsp;&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">3. Notice of sale&nbsp;<\/h3>\n\n\n\n<p>If borrowers fail to pay the missing payments within the allotted time, the lender will file a notice of sale with the local recorder\u2019s office. The notice of sale states the date the home is officially up for sale and the minimum bid the lender will accept. Depending on state laws, the lender must also publicly advertise the property and sale date.&nbsp;<\/p>\n\n\n\n<p>Before the property is sold, borrowers may also have the opportunity to exercise the right of redemption and pay the amount due to reclaim the home, depending on state laws.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">4. Property sale&nbsp;<\/h3>\n\n\n\n<p>On the sale date, the property is considered up for auction and will go to the highest bidder that meets the lender\u2019s requirements. Once the sale is complete, the deed is given to the new buyer, who then has possession of the property.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">5. Eviction<\/h3>\n\n\n\n<p>Borrowers have a few days to pack and move out of the property to a new residence after the sale. If borrowers do not voluntarily move out, law enforcement will be called to remove any people and belongings from the property.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Types of Foreclosure<\/h2>\n\n\n\n<p>The type of foreclosure depends on the state you live in and your mortgage loan terms.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Judicial<\/h3>\n\n\n\n<p>In a judicial foreclosure, a lender files a lawsuit and the borrower is notified. The borrower then has a set amount of time to make up the missed payments; otherwise, the foreclosure process will continue.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Power of sale (nonjudicial)<\/h3>\n\n\n\n<p>Power of sale foreclosure is also known as a nonjudicial foreclosure. This type of foreclosure happens if the mortgage has a power of sale clause in the contract. When borrowers fall behind on payments, the clause allows the lender to auction off the property without involving a court.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Strict foreclosure<\/h3>\n\n\n\n<p>Only a few states allow strict foreclosures. In a strict foreclosure, the lender files a lawsuit against the borrower, and if the borrower doesn\u2019t make up the payments within the court-ordered amount of time, the lender can take possession of the home.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What Happens When Your Property Is Foreclosed<\/h2>\n\n\n\n<p>Foreclosure is a difficult process that no homeowner wants to go through. In addition to losing your home, there are other ramifications borrowers face, such as:&nbsp;<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Credit damage<\/strong>: Foreclosure can be damaging to your credit score, since a foreclosure stays on your credit report for seven years.<\/li>\n\n\n\n<li><strong>Property and equity loss:<\/strong> Losing your home is both financially and emotionally devastating. You\u2019ll also lose any money or equity improvements you put into the home.&nbsp;<\/li>\n\n\n\n<li><strong>Remaining debt:<\/strong> Depending on your state\u2019s laws, you may owe money if your home sells for less than you owe.&nbsp;&nbsp;<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Preventing a Foreclosure<\/h2>\n\n\n\n<p>Foreclosure can be an overwhelming and scary situation. If you\u2019re behind on your payments, there are a few steps you can take to work with your lender and avoid foreclosure.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Apply to refinance<\/h3>\n\n\n\n<p>Borrowers worried about missing payments should look into refinancing the loan into more affordable payments to prevent defaulting on the mortgage. Lenders usually only allow refinancing if the borrower hasn\u2019t missed a payment, so this is a great preventative option. Contact your lender to refinance and understand your options.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Ask for a repayment plan<\/h3>\n\n\n\n<p>Contact your lender as soon as you know you will miss a mortgage payment to see if you can set up a repayment plan. These plans usually allow borrowers to defer payment for a month or two or make lower, but more frequent, payments.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Apply for forbearance<\/h3>\n\n\n\n<p>Forbearance allows borrowers to pause on their mortgage payments for a short amount of time to rebuild savings or increase income. Forbearance is typically granted when borrowers are navigating a short-term crisis, such as a job loss or other financial setback.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Give lender the property deed<\/h3>\n\n\n\n<p>If you know you won\u2019t be able to catch up on your mortgage payments, you can sign a deed in lieu of foreclosure to voluntarily give the lender the deed to your home. By giving the lender the property deed, you\u2019ll minimize the consequences that happen with a formal foreclosure. Providing the deed in lieu of foreclosure will still negatively impact your credit score, but not as much.&nbsp;&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Apply for a short sale<\/h3>\n\n\n\n<p>A short sale is when the property is listed for an amount less than what the borrower owes on the mortgage. The lender must approve a short sale, and the home must be worth less than what the borrower owes on the loan. All sale proceeds go to the lender as well. This option helps borrowers avoid credit score damage that they\u2019d receive through foreclosure.&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Foreclosures as a Real Estate Investing Strategy<\/h2>\n\n\n\n<p>Many real estate investors like to target foreclosed properties as investments, since foreclosed homes can often be acquired for below market value. This makes it easier for investors to renovate and then rent or resell the property to make a profit.<\/p>\n\n\n\n<p>However, there are some risks to <a href=\"https:\/\/www.biggerpockets.com\/blog\/2013-03-22-how-to-buy-a-foreclosure\" target=\"_blank\" rel=\"noreferrer noopener\">buying foreclosed properties<\/a>. The condition of the property is unknown, and there may be outstanding <a href=\"https:\/\/www.biggerpockets.com\/blog\/property-lien-search\" target=\"_blank\" rel=\"noreferrer noopener\">liens<\/a> on the property investors have to deal with. Additionally, lenders don\u2019t offer conventional loans to buy a foreclosed property, which means investors will need to come up with the entire amount to purchase the home.&nbsp;<\/p>\n\n\n\n<p>Ultimately, there are pros and cons to buying a foreclosed property, and investors should take these things into consideration when <a href=\"https:\/\/www.biggerpockets.com\/blog\/how-to-find-foreclosure-and-pre-foreclosure-listings\" target=\"_blank\" rel=\"noreferrer noopener\">looking into foreclosure listings<\/a>.&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Final Thoughts<\/h2>\n\n\n\n<p>Foreclosure is a stressful process and something no property owner wants to go through. Fortunately, there are steps you can take to work with your lender and avoid foreclosure. If you\u2019re having financial difficulties, reach out to your lender early on to see what options you have to refinance or create a repayment plan.<\/p>\n\n\n\n    \n  <div id=\"visibility-group-block_6826c3e6f217bfd335d03e9f8c784813\" class=\"visibility-group alignwide  hidden\">\n        \n\n<div id=\"hero-block_79392db27cd28007343f9a6c05c18c09\" class=\"first:mt-0 hero-block py-4  alignwide   has-background has-slate-200-background-color has-text-color has-theme-gold-color\">\n    <div\n        class=\"gap-10 lg:gap-20 flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 lg:w-1\/2 \">\n            <main class=\"py-4\">\n                \n\n<p class=\"has-slate-800-color has-text-color has-large-font-size\" style=\"font-style:normal;font-weight:800\">Find the Right Agent, Close the Best Deal<\/p>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-slate-900-color has-text-color\" style=\"font-size:18px\">Step #1: Use Agent Finder to match with top <em><strong>investor-friendly<\/strong><\/em> real estate agents to help you find, analyze, and close your next deal.<\/p>\n\n\n\n<div id=button-custom-event-block_d5ad69fabbb4d75d652d49dbcf323f54 class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/agent\/match\"\n        x-on:click=\"window.analytics.track('Blog Block | B2C Marketplace Agent Finder', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/what-is-a-foreclosure',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Find an Agent<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n                <div class=\"lg:w-1\/2 first:mt-0 relative h-full lg:flex lg:items-center\">\n            <img decoding=\"async\" class=\"object-cover w-full relative z-20 my-0  rounded-md hidden lg:block\" src=\"https:\/\/www.biggerpockets.com\/blog\/wp-content\/uploads\/2021\/08\/Marketplace-Blog-Blocks-Agent-v3.png\" alt=\"investor friendly real estate agent\" title=\"\">\n        <\/div>\n            <\/div>\n<\/div>\n\n  <\/div>\n  \n\n\n<div class=\"wp-block-group\"><div class=\"wp-block-group__inner-container is-layout-constrained wp-block-group-is-layout-constrained\">\n    \n  <div id=\"visibility-group-block_64dd31c79f00f\" class=\"visibility-group  \">\n        \n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<div id=\"hero-block_64dd2875dba9d\" class=\"first:mt-0 hero-block py-4    has-background has-slate-100-background-color has-text-color has-theme-slate-color\">\n    <div\n        class=\" flex flex-wrap lg:flex-nowrap max-w-screen-xl mx-auto px-4 relative lg:items-center \">\n\n        <div class=\"relative z-30 w-full \">\n            <main class=\"py-4\">\n                \n\n<h3 class=\"wp-block-heading my-0 tracking-tight font-extrabold has-theme-slate-dark-color has-text-color has-large-font-size\">Join the community<\/h3>\n\n\n\n<p class=\"my-3 md:my-5 lg:my-8 has-theme-slate-color has-text-color\" style=\"font-size:16px;font-style:normal;font-weight:400\">Ready to succeed in real estate investing? Create a free BiggerPockets account to learn about investment strategies; ask questions and get answers from our community of +2 million members; connect with investor-friendly agents; and so much more. <\/p>\n\n\n\n<div id=button-custom-event-block_64dd2888dba9e class='button-custom-event'>\n      <a\n    href=\"https:\/\/www.biggerpockets.com\/signup\"\n        x-on:click=\"window.analytics.track('Blog Block | Acquisition | Free Membership Signup', {\n      referrer: 'https:\/\/www.biggerpockets.com\/blog\/what-is-a-foreclosure',\n    });\"\n    class=\" btn-shape inline-block no-underline has-background has-theme-blue-background-color has-text-color has-white-color\" target=\"_blank\">Sign Up<\/a>\n  <\/div>\n\n            <\/main>\n        <\/div>\n\n            <\/div>\n<\/div>\n\n\n<div style=\"height:10px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n  <\/div>\n  <\/div><\/div>\n","protected":false},"excerpt":{"rendered":"<p>\u201cForeclosure\u201d can be an ominous word in real estate, and the process can feel a little murky, since it varies from state to state. Savvy real estate investors should understand foreclosures in case they face foreclosure themselves or are interested in the investment opportunity foreclosed properties offer.\u00a0<\/p>\n","protected":false},"author":613670,"featured_media":161228,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[6,7119,5524],"tags":[],"class_list":["post-161227","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-foreclosure-investing","category-biggerpockets-daily","category-real-estate-investing-for-beginners"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/161227","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/613670"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=161227"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/161227\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/161228"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=161227"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=161227"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=161227"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}