Foreclosure – What it Means & How to Avoid It

what foreclosure means and how to avoid it

If you’ve just received foreclosure papers, you may be wondering what happens next. Your first step should be to take a deep breath.  Millions of people get these notices and the bank does not want to take your home.  You also have rights while you’re in the foreclosure process to protect yourself from losing your home.

Foreclosures are very expensive for the mortgage company, so your lender is already prepared to help you avoid going through the process, and that is what you’ll discover in this post.  But first, let’s look at what a foreclosure is. 

What is a Foreclosure?

A foreclosure is where a person, company or organization has a mortgage and defaults on multiple payments.  Once this happens the lender will begin the process of taking ownership of the property, and that is called foreclosure.  

The first step in the foreclosure process is called pre-foreclosure which starts with a letter sent from the lender to the mortgage taker and ends with an auction or sale of the property, or a resolution where the mortgage taker and lender cut a deal.

Now that you know what a foreclosure is, let’s look at the types of foreclosures, how you can avoid going into foreclosure, and some FAQs to alleviate any concerns you may have. 

The Types of Foreclosures



Judicial Foreclosure Power of Sale (Nonjudicial) Foreclosure Strict Foreclosure REO


Expedited Foreclosure
Sale occurs under judicial supervision X X X X
Doesn’t involve the judicial system X X X
Property is sold at auction X X X
Can stop the foreclosure by repaying what is owed up to the moment of sale X X X X
Most common X
Use when there is a power of sale clause X
Use when the property is considered legally abandoned X
Use when what is owed exceeds the value of the property X
Allowed in every state X X X X
Only allowed in Alabama, Alaska, Arizona, Arkansas, California, Colorado, Georgia, Hawaii, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia and Wyoming and Washington, D.C. X
Only allowed in Connecticut and Vermont X
Can take 12 months or longer X X
Title to the property transfers to the lender without requiring a sale X

Each type of foreclosure has ways to prevent you from losing your home.  And each one has a few nuances that make it unique.  But no foreclosure is final until the auction happens or the property is sold.  And now that you know the types of foreclosures, let’s go through the process together so you can then learn how to avoid a full foreclosure.

The Foreclosure Process

Foreclosure is normally done in a five step process over a 12+ month period.

  1. Once you miss three back-to-back mortgage payments the bank sends a pre-foreclosure letter.
  2. If you still haven’t made a payment in the fourth month, a notice of default is sent and you’ll have 30 days to catch up on past due payments before the foreclosure process starts. 
    Note:  Federal law prohibits lenders from starting foreclosure proceedings until you are more than 120 days past due.
  3. If no resolution is met, a date is set for your property to be sold at a foreclosure auction and will be awarded to the highest bidder who is entitled to immediate possession.  If the property doesn’t sell, the bank takes ownership, and it becomes a REO property.
  4. As soon as the auction ends and a new owner is named, an order to evacuate is issued to anyone still living in the property.

Note: If the foreclosure is non-judicial, the process is started with filing paperwork with the necessary court and that’s it. Judicial foreclosures will require court approval for each step and the sale.

And you have rights if your lender is foreclosing on you.  These rights protect you by providing you with options to stop the foreclosure process and continue living in the house you love.

Your Rights When You’re in Foreclosure

Knowing your rights can help you navigate the foreclosure process.

Right to a Breach Letter

A breach letter must include:

  • Details about the default and its causes
  • What you need to do to reinstate the loan
  • The date by which you must fix this (usually at least 30 days from the date you receive the notice)
  • Notice that failure to do so on time will lead to the sale of the property

Without this letter and the above details, your lender has to restart the process.

Notice of the Foreclosure

If it’s a judicial foreclosure, you’ll get a letter letting you know that a foreclosure has begun. If it’s a nonjudicial foreclosure, you may receive two notices:  Notice of default (NOD) and Notice of sale (NOS).

Without this letter(s), the foreclosure process restarts.

Right to Reinstate

You can stop your foreclosure by making a lump-sum payment and get up to date on your loan, including any fees.

Right of Redemption

If your lender refuses to allow you to reinstate, you can ask a court to allow the reinstatement. 

Right to Foreclosure Mediation

This allows you to discuss options like a loan modification, short sale, repayment plan, or deed in lieu of foreclosure with your lender instead of having them foreclose.

Right to Challenge the Foreclosure

No matter where you live, you have the right to challenge the foreclosure in court.  In a judicial foreclosure, you can join in the existing lawsuit.  If it’s a nonjudicial foreclosure, you must file your own lawsuit.

Right to a Surplus

If your property sells for more than you owe, you are entitled to the surplus. Depending on your state, if the sale does not cover your debt, you may get a deficiency judgment.

Fair Debt Collection Practices Act Validation Letter

The Fair Debt Collection Practices Act (FDCPA) applies to judicial foreclosures because creditors can get deficiency judgments. 

Your lender must send you a FDCPA validation notice that includes:

  • How much you owe, including interest, late charges, attorney fees, and other charges
  • The name of the creditor
  • A statement that explains that, unless you dispute the validity of the debt within 30 days of receiving the letter, the debt will be assumed to be valid
  • A statement that, if you notify the debt collector in writing within the 30-day period to dispute the debt, the debt collector will get written verification of the debt and send you a copy
  • A statement that the debt collector will provide you with the name and address of the original creditor, if it’s different from the current one if you request it within the 30-day period.

Remember that you have the right to challenge a foreclosure if you think your lender made a mistake or has violated the law.

How to Avoid Foreclosure

If you’re facing a foreclosure, you aren’t alone, and there are many different ways to stop a foreclosure in its tracks.  Explore the different options below:

  • Reach out to your lender before your payment is due and explain your situation.  
  • Use the courts by filing one of the following to defend yourself from the lender:
    • improper service of notice
    • improper loan closing
    • breach of contract
    • defective chain of title
    • fraud and misrepresentation.
  • Refinance your loan or apply for a reverse mortgage if you are older than 62.
  • Apply for government assistance with the U.S. Department of Housing and Urban Development or your state’s housing agency
  • Ask your lender for a reinstatement, a mortgage forbearance, or a loan modification.
  • Use either a deed-in-lieu of foreclosure or deed for lease
  • Rent out your home to make the mortgage payments.  
  • Sell your home.
  • File for bankruptcy.

Now you know what a foreclosure is, what your rights are, and how to avoid one, here are some common questions about foreclosures.

Foreclosure FAQs

Who pays the foreclosure fees?

Depending on how the foreclosure takes place, foreclosure fees are paid by different parties. If the loan is paid off, you are responsible for paying the fees to the lender. If the property is sold at an auction, the bidder is responsible for paying the foreclosure fees. If the lender is the buyer of the property at an auction, the lender then is responsible for the fees. 

Will a Chapter 13 bankruptcy stop a foreclosure?

Yes, a Chapter 13 bankruptcy will stop a foreclosure and will help you to set up a repayment plan to get back on track.  As long as you continue to make on-time payments during your Chapter 13 bankruptcy, you can permanently delay foreclosure.

Do military personnel on active duty have any special protections to prevent foreclosure?

Yes, there are special protections for military personnel on active duty. A lender cannot foreclose on a house owned by military personnel on active duty unless a court gives permission. 

What should you do when you get notified of missed payments?

When you get a pre-foreclosure letter, you should contact the loss mitigation department at your lender right away.  You will need to provide the loss mitigation department with your financial information and they will determine which alternatives to foreclosure that you qualify for.  The sooner you start working with them, the more options you may have.

Now that you know the ins and outs of how foreclosures work and your rights, you can take the right measures to protect your home against one. 

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