What Happens When Your Home Goes Into Foreclosure - Home & Texture
Homeownership Foreclosure Process

What Really Happens When Your Home Goes Into Foreclosure

Learn what happens in order to avoid it.

By
July 7, 2024 at 7:01 AM PST
Homeownership Foreclosure Process

What Really Happens When Your Home Goes Into Foreclosure

Learn what happens in order to avoid it.

By
July 7, 2024 at 7:01 AM PST

Foreclosure is a situation every homeowner tries to avoid. Even just the word alone can strike fear into the hearts of many people. And while it’s definitely one of those things you hope never happens to you, understanding how it works can kind of demystify it a bit, and hopefully make it a little less scary.

To learn more, here’s what really happens when your home goes into foreclosure, step-by-step.

A person counting cash
Photo credit: Karolina Kaboompics

You don’t pay your mortgage.

Every foreclosure begins with a late payment. People don’t pay their mortgage bill for a variety of reasons, from unexpected medical expenses to simply forgetting. But either way, falling too far behind on your mortgage payments isn’t a good look to creditors. And when they’re unhappy, your home could be in jeopardy.

That doesn’t mean that if you miss a payment, your home will be foreclosed. Instead, your lender will probably just give you a grace period to catch up.

The lender gets involved.

If you keep defaulting on your payments, your lender will likely need to step in. They’ll send letters and emails, and make phone calls to try to understand what’s going on and see if you can catch up. This step is known as the pre-foreclosure stage.

At this point, you can probably work something out with your lender. Maybe you can negotiate a payment plan, modify your loan, or even refinance your mortgage to keep up with your balance. But you have to act quickly because…

A ‘Notice of Default’ will be filed.

If you can’t work out a deal somehow, the lender will eventually have to file a Notice of Default with the county recorder’s office. An NOD is a document that kicks off the official foreclosure process. You’ll get a copy, and so will your local newspaper which will then publish it.

The countdown begins.

Once the NOD is filed, you have about 90 days to fix the problem. This period is known as the reinstatement period because you still have time to stop the foreclosure if you do it within the allotted grace period.

A ‘Notice of Sale’ is issued.

If you can’t come up with a solution during the reinstatement period, they’ll issue a Notice of Sale. This is a notice meant to inform you that your home will be sold at auction, along with the date, time, and location. And just like the NOD, the ‘Notice of Sale’ will be published in the local newspaper, too.

A gavel at an auction
Photo credit: Sora Shimazaki

Your home is auctioned off.

At the auction, your home will be sold to the highest bidder. But if no one bids enough to cover what you owe on the mortgage, the lender will usually buy the home back and then sell it as a bank-owned property later.

You have to move out.

Unfortunately, if your home is sold at the auction, you’ll have to move out, but not immediately. The timeline for when you need to vacate can vary depending on your state’s laws. But you should receive a notice letting you know the deadline to leave — usually around 30 days.

In many cases, the person who bought your home might offer you “cash for keys.” In other words, if you move out quickly, they’ll help pay for some of your moving expenses as long as you leave the home in good condition.

A woman holding keys to a home
Photo credit: Thirdman

You’ll need to rebuild your credit and financial future.

Foreclosure can cause your credit score to seriously drop, somewhere to the tune of 200 points or even more. Your foreclosure will stay on your credit report for seven years, and while this makes it a lot harder to obtain a loan, credit card, or even rent an apartment, it’s not the end of the world. By managing their money just right, a lot of people rebuild their credit over time, with many eventually buying a home (or two) again.



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