What is foreclosure?
Foreclosure is what happens when a homeowner can't make the principal and interest payments on a mortgage and the lender exercises its right to take back and sell the property. If the sale brings in less than what's owed, some states allow the lender to pursue a deficiency judgment for the difference, which can damage your credit for years.
What happens when I miss a payment?
Missing a single payment doesn't trigger foreclosure, but it starts the clock. Late fees are added, and after several missed payments the lender can begin the legal process. The sooner you reach out, the more options you'll have.
How can foreclosure be avoided?
Contact your loan servicer's loss mitigation department as soon as you know you'll have trouble. Be ready to explain what changed and share your income and expenses. Keep every letter and return every call. Lenders would rather work out a solution than foreclose.
Solutions for temporary problems
- Reinstatement: pay the past-due amount in a lump sum by an agreed date
- Forbearance: the lender temporarily reduces or pauses payments
- Repayment plan: the past-due amount is spread across future monthly payments
- Partial claim (FHA loans): a one-time interest-free loan from the FHA insurance fund brings the mortgage current
Solutions for long-term problems
- Loan modification: the lender changes the terms, such as extending the term or lowering the rate, to make the payment affordable
- Pre-foreclosure sale (short sale): the lender allows you to sell the home for less than the balance owed
- Deed in lieu of foreclosure: you voluntarily transfer the home to the lender, and the debt is forgiven
- FHA and VA programs: government-backed loans have additional assistance options; ask your servicer