What Is Foreclosure And How Do You Avoid It?

0 Min Read
Updated March 8, 2024
Written By
Kevin Graham
Yellow house with small balcony.

No one plans on missing mortgage payments and putting their home at risk by going into default. Whether it’s a job loss, a series of unexpected medical bills or any number of other curveballs that can be thrown at us, life happens. While the unpredictable can’t be avoided, knowledge is key to help ease repercussions – like foreclosure.

What Is Foreclosure?

Foreclosure is the process by which lenders take back a home if you default on the terms of the mortgage. It’s often a last resort. However, if you’ve fallen behind on your payments, be sure to contact your servicer. Mortgage servicers or lenders will try to help you stay in your home. If that’s impossible, they’ll look for ways to help you sell or gracefully exit your home.

This article will focus on the nuances of the foreclosure process for those looking to avoid it. If you wish to find more information on purchasing a home in foreclosure, check out our article on how to buy foreclosed homes.

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How Does Foreclosure Work?

While this is an overview, the foreclosure process can vary quite a bit depending on state laws where you live.

While most of this article discusses foreclosure after missing payments, there are other ways you can lose your home. There may be foreclosures for unpaid property taxes. It’s also possible for foreclosure to be initiated due to unpaid homeowners association dues if the bylaws allow. A due-on-sale clause lets lenders collect after the property is transferred in many cases.

1. Missed Payments

If you pay after the due date in your mortgage contract, you’re considered past due. If you pay monthly, the due date is usually the first of the month. However, most loan agreements feature a mortgage payment grace period. If you pay after the grace period, you’ll likely be charged a late fee.

If you haven’t made your mortgage payment for 30 days or more, that’s when you’re considered to be in default, and it’s reported to the credit bureaus. Some lenders may refer to this time as preforeclosure, but the simplest way to think of this is when missed payments start impacting your credit.

Although the foreclosure timeline varies from state to state and can take a while, there are still costs of making a late payment, including the following:

  • Late fees: When you go past the grace period on your mortgage, servicers will charge a late fee stipulated in your mortgage documents.
  • Potential credit impact: Once your payment is 30 days late, that gets reported to the credit bureaus. This lowers your credit score. The effect it has depends on how many late payments you’ve had in the past and what your score was before the event. It’s also important to note that late payments can affect your ability to qualify for a new mortgage for a period of time, depending on the type of loan you’re trying to get and how many late payments you have. Payments that are 60 or 90 days late will have a more severe negative impact on credit than 30-day late payments.

2. Notice of Default

A notice of default or notice of intent alerts you of a lender’s plan to foreclose on your property for nonpayment or other violation of your mortgage terms. Although the timeline can vary, this is when you should talk to your mortgage servicer if you haven’t already.

However, in most cases, by this point your lender and/or mortgage servicer will have been in contact with you multiple times to try and help you stay in your home or reach a better outcome than foreclosure.

Judicial Vs. Nonjudicial Vs. Strict Foreclosure States

If you find yourself headed for foreclosure, it’s important to know that there are three basic ways things can be handled: judicial, nonjudicial or strict foreclosure.

In a judicial foreclosure, the process has to go through the court system. These occur in certain states when a lender doesn’t have a power of sale clause in the mortgage allowing them to evict without going through the court system.

Nonjudicial foreclosures, also known as deed of trust foreclosures, don’t require that the lender goes to court and typically occur when a mortgage has a power of sale clause or if a borrower’s promissory note is tied to a deed of trust. The trustee – usually a title company – may also seize ownership of a property and sell it without involving a court. This is based on the lender holding the title to the property until it’s paid off under a deed of trust.

Nonjudicial foreclosures eliminate the need for a lawsuit and are therefore a faster, more direct foreclosure process. 

There is a third option called strict foreclosure utilized in a couple of states. This is essentially an expedited form of judicial foreclosure where the client is given a specific time to pay the mortgage in full. Otherwise, the property goes back to the lender.

Here’s a list of states that utilize each type of foreclosure, as of February 2023. It’s worth noting that there’s not always a clean separation because New Mexico and Washington D.C. allow for both deed of trust and judicial foreclosures depending on the situation. Laws are also amended periodically, so be sure to double check the legal process in your state. Consult a lawyer if you can.

Deed Of Trust States

The U.S. states which allow nonjudicial foreclosures include:

  • Alabama
  • Alaska
  • Arizona
  • Arkansas
  • California
  • Colorado
  • Georgia
  • Idaho
  • Maryland
  • Massachusetts
  • Michigan
  • Minnesota
  • Mississippi
  • Missouri
  • Montana
  • Nebraska
  • Nevada
  • New Hampshire
  • New Mexico
  • North Carolina
  • Oregon
  • Rhode Island
  • South Dakota
  • Tennessee
  • Texas
  • Utah
  • Virginia
  • Washington
  • Washington, D.C.
  • West Virginia
  • Wyoming

Colorado and Maryland have some judicial supervision in the foreclosure process.

Judicial Foreclosure States

The following states use judicial foreclosure:

  • Delaware
  • Florida
  • Hawaii
  • Illinois
  • Indiana
  • Iowa
  • Kansas
  • Kentucky
  • Louisiana
  • Maine
  • New Jersey
  • New Mexico
  • New York
  • North Dakota
  • Ohio
  • Oklahoma
  • Pennsylvania
  • South Carolina
  • Washington, D.C.
  • Wisconsin

Strict Foreclosure States

The following states allow for strict foreclosure:

  • Connecticut
  • Vermont

3. Sale Of Home

If it gets to the point where the home is sold in a foreclosure action, state law dictates when and how that happens. It’s often an auction. If the investor doesn’t recoup what they expect to in the auction sale, they can retain the property and choose to market it themselves.

You do have the option of reinstating your mortgage by fully paying any back payments and any fees owed up until the time of the sale. If you do this, your regular monthly payment is just picked back up where you left off.

Some states allow for a right of redemption even after the sale. Under this option, you have a certain amount of time to buy the property back by paying the balance you owe on your mortgage, plus interest and fees.

How Long Does A Foreclosure Proceeding Take?

Foreclosure actions in deed-of-trust states where a lender has the power to sell the property regardless of whether that clause is in the contract tend to proceed quicker than in areas where it has to go through the court system. However, timelines can vary quite widely depending on where you live.

Highest Average Number Of Days To Complete Foreclosure, By State

For the tables in the next couple of sections, the numbers come from ATTOM Data Solutions. They were collected in the third quarter of 2022.


Average Number Of Days To Close



New Jersey






New York


Lowest Average Number Of Days To Complete Foreclosure, By State


Average Number Of Days To Close











How To Avoid Foreclosure

If you find yourself in danger of going down the road toward foreclosure, take a deep breath and don’t panic. You may still have options to avoid foreclosure. Let’s talk through some of them.

Other than refinancing, it’s important to note that many of these options will likely have a somewhat negative impact on your credit and mortgage qualification prospects for a while. The exception to this is if your hardship is related to something like a natural disaster. Still, the impact will be less severe than a full foreclosure.

1. Refinance Your Home

If you have concerns about your budget tightening up, but you haven’t missed a payment yet, it could be worthwhile to look into a refinance. You could end up saving money if you’re able to lengthen your term enough that it results in a lower monthly payment. The same effect can be achieved if you get a lower interest rate, but that depends on market conditions at the time.

It’s important to consider this before you’re at the stage of missing payments because it’ll be harder to qualify after missing a payment. But if you’re just trying to plan for a more secure future before trouble hits, this could be a good option.

2. Talk To Your Mortgage Servicer

It’s important to speak as soon as possible with your mortgage servicer about your options if you have trouble making a payment so they can work with you to avoid foreclosure. Your mortgage servicer is the entity you make your payment to and may or may not be your original lender.

There are several options your servicer may be able to offer you depending on the circumstances that led up to your missed payment. Let’s run through a few of the alternatives that might be available to help keep you in your home.

  • Forbearance: Forbearance involves a temporary pause of your mortgage payment. It’s often the first alternative offered by servicers, particularly if the hardship you’re experiencing is expected to be short-term in nature.
  • Repayment plan: Once the forbearance is over, you’ll have to make up payments missed during the forbearance. One option for doing this involves a repayment plan, where a portion of your back payment is added to your monthly payment until it’s paid off. Typically, most servicers may qualify clients for repayment periods of 2 – 4 months and no longer than 6 months.
  • Deferred payments: A deferral allows you to delay payment until a later date. In some circumstances, you may be given the option to defer a number of missed payments until you sell, refinance or otherwise pay off your loan.
  • Consider a modification: If you’ll be unable to get current using a deferral or repayment plan, the next option your lender will look at would be a modification of your loan terms to build new missed payments into your loan balance to eventually be paid off. This may change your rate or extend the term of your mortgage.

3. Get Help

The U.S. Department of Housing And Urban Development (HUD) offers homeownership counseling to those seeking advice on their options to avoid foreclosure. They can also help you identify the help that’s real vs. what could be a scam. If you have access to a lawyer, it’s not a bad idea to seek their advice about the foreclosure process and what you might bring to court.

4. Sell Your Home

If staying in your home is impractical, it’s important to note that home values have been higher over the last few years across much of the country. If you can sell your home for a profit, this may be the best option if you can’t remain in it.

An experienced real estate agent could help you sell while also learning your goals. You could take the money from the sale and use it toward rent or choose to downsize into a more affordable home for your budget.

5. Short Sale

If selling your home at market value wouldn’t cover your outstanding loan balance, the next best option may be a short sale. Your lender has to agree to this and has control over any offers that are accepted. They’re agreeing to sell the property for less than what you owe. In some states, lenders may be able to get a judgment against you for the difference.

As an incentive to work with them and keep the property in good condition, your lender may give you some financial help toward rent or finding a new place to stay following the short sale.

6. Deed In Lieu Of Foreclosure

A deed in lieu of foreclosure allows you to voluntarily sign the property over to your lender. While you’re giving up your home, this has a couple of advantages: First, you avoid the emotional trauma that can come with a public eviction. A lender will also often give you a certain amount of money to help you settle in somewhere else.

Again, some states may allow lenders to obtain a judgment against you for the difference between what they receive when they sell the property and what you owe.

Beware Of Foreclosure Scams

When you’re at risk of foreclosure, any offer of help can sound good. However, there are scammers who will prey on your vulnerable situation. The Consumer Financial Protection Bureau has lots of information on the fraud that exists out there.

As a general rule, if it sounds too good to be true, it probably is. Your best sources of information in terms of potential relief are your servicer, lender and HUD. You can also consult local legal representation.

Financial Consequences Of Foreclosure

The actual impact of a foreclosure on your credit is hard to pin down to a specific number. It depends on your credit history. If you’ve never had credit issues in the past and suddenly have a foreclosure, the impact will likely be worse than for someone who has had persistent problems with their credit. In any case, it’s something to be avoided if at all possible.

A foreclosure stays on your credit for up to 7 years. Although its effect on your score lessens over time, it will affect your prospects for mortgage qualification for some time. If you’re eligible for a VA loan, you may be able to get a new mortgage after 2 years. The waiting period is 3 years on FHA loans. A full 7 years has to pass before you can get a conventional or Jumbo Smart loan.

Certain states may allow a lender to use the court system to recover from you the difference between what they received in the foreclosure sale and your remaining mortgage balance.

Foreclosure FAQs

Does an appeal stop a foreclosure sale? 

When dealing with a judicial foreclosure, you’ll be given the opportunity to make your case in court. If successful, you could stop your foreclosure process. However, you’ll likely need professional representation who must argue that the lender acted in bad faith or that there were significant errors made during the judgment of the foreclosure. 

Do I have to move out of a home once the foreclosure notice is served?

Your rights in a foreclosure action depend on where you live, so the timeline of the process can vary quite a bit. In judicial foreclosure states, the eviction notice will likely require a court order. In deed-of-trust states, something may need to be signed by the trustee. If you have questions about the process, we recommend consulting a local attorney.

The Bottom Line: Foreclosure Can Be Avoided With Good Communication And A Plan To Repay

If you’re worried you might be facing foreclosure, it’s important to talk to your mortgage servicer as soon as possible to discuss your situation. The longer you wait to confront the problem, the fewer options you may have.

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