Foreclosure Process: Timeline, Credit & Buying Again

When homeowners miss several mortgage payments, their lender may begin the foreclosure process. This is a legal procedure that allows the lender to take back the home and sell it to recover the remaining balance. While it’s a stressful situation, understanding how the process works can make it easier to navigate.

From the early stage of pre-foreclosure, where homeowners still have a chance to resolve the debt, to the final sale of the property, each step has its own meaning and timeline. Whether you’re exploring the housing market in Los Angeles, CA or searching for a home in Chicago, IL, knowing what to expect during foreclosure can help you make informed decisions.

In this Redfin article, we’ll explain the foreclosure process step by step, how long it typically takes, and what options may be available along the way.

What does foreclosure mean?

Foreclosure is the legal process a lender uses to reclaim a property after the homeowner has missed enough mortgage payments to trigger default under the loan terms and state law.. Once the process is complete, the homeowner loses ownership of the property, and the lender typically sells it to recover the unpaid balance of the mortgage.

What is pre-foreclosure?

Pre-foreclosure is the first stage of the foreclosure process. It begins after a homeowner has missed several mortgage payments (often three or more, though this can vary by lender and state). At this point, the lender files a notice of default (NOD) – or, in some states, a Lis Pendens or Notice of Trustee’s Sale – which is a public record that signals the borrower is behind on payments.

During pre-foreclosure, the homeowner still has options, such as:

• Catching up on missed payments to bring the loan current.
• Negotiating with the lender for a repayment plan or loan modification.
• Selling the home, possibly through a short sale, to avoid full foreclosure.

>>Read: Can You Sell a House If You Are Behind on Payments?

What is the foreclosure process?

While foreclosure laws vary by state, the process typically follows these steps:

1. Missed payments: The foreclosure process usually starts after a homeowner misses several consecutive monthly payments.
2. Notice of default (NOD) or foreclosure notice: The lender files a legal notice with the county and notifies the borrower that the loan is in default.
3. Pre-foreclosure period: During this time, the homeowner may still resolve the debt by paying the overdue amount, arranging a loan modification, or selling the property.
4. Auction or trustee sale: If the debt isn’t resolved, the home is scheduled for a foreclosure auction. These auctions can be held in person or online, and buyers often must pay in cash or with certified funds. At the auction, the property is sold to the highest bidder.
5. Bank-owned property (REO): If the home doesn’t sell at auction, it becomes a real estate owned (REO) property and the lender takes possession, later selling it on the open market.

Types of foreclosure and how long does the process take?

The time it takes to complete the foreclosure process depends on the type of foreclosure allowed in your state:

Other factors, such as negotiations with the lender, bankruptcy filings, or attempts to sell the home, can also extend the timeline regardless of state laws.

Foreclosure vs. short sale vs. deed in lieu

When homeowners fall behind on payments, there are alternatives to the foreclosure process. Each comes with its own pros and cons:

• Foreclosure: The lender repossesses and sells the home after default. This usually has the biggest impact on your credit score and may lead to a deficiency judgment if the sale doesn’t cover the full balance.
• Short Sale: The home is sold for less than what’s owed, but only with lender approval. While it still hurts your credit, the damage is generally less severe than foreclosure, and it allows you to move on sooner.
• Deed in Lieu of Foreclosure: You voluntarily transfer ownership of the home to the lender to settle the debt. It avoids the public auction process and can sometimes reduce additional costs, but approval depends on lender requirements and whether there are other liens on the property.

In general, short sales and deeds in lieu are considered less damaging to your credit than a full foreclosure.

Can you stop foreclosure once it starts?

Yes, in many cases, foreclosure can be stopped or delayed, even after the process has begun. Homeowners may have several options depending on their financial situation and state laws:

• Bring the loan current: Paying the past-due balance, including late fees, can reinstate the loan.
• Loan modification: Lenders may adjust the loan terms, such as lowering the interest rate or extending the repayment period, to make payments more manageable.
• Refinancing: If eligible, refinancing into a new mortgage can help pay off the delinquent loan.
• Forbearance or repayment plan: Some lenders allow temporary payment pauses or structured repayment plans.
• Selling the home: Listing the property or arranging a short sale can help avoid foreclosure and minimize credit damage.
• Bankruptcy filing: Filing for bankruptcy can temporarily halt foreclosure while the court reviews repayment options.

Acting quickly is essential. The earlier a homeowner communicates with their lender, the more options they usually have to prevent foreclosure.

What happens after foreclosure?

Once the foreclosure is complete, the outcome depends on whether the property sells at auction:

• If the home sells at auction: Ownership transfers to the winning bidder, who then becomes responsible for the property. The former homeowner must vacate the home, often within a set timeframe determined by state law.
• If the home doesn’t sell at auction: The lender takes possession of the property, which becomes a real estate owned (REO) home. These properties are typically listed for sale on the open market by the lender.

How does foreclosure affect your credit score?

A foreclosure can have a serious impact on your credit score. Once reported, it may lower your score by 100 or more – often up to 160 points –  depending on your credit history. The foreclosure will typically remain on your credit report for seven years from the date of the first missed payment that led to the foreclosure.

During this time, you may find it harder to qualify for loans or credit at favorable rates. However, the effect of foreclosure on your credit lessens over time, especially if you rebuild by making on-time payments and keeping your credit balances low.

Can you buy a house after foreclosure?

Yes, it’s possible to buy another home after foreclosure, but there’s usually a waiting period before lenders will approve a new mortgage. The length of this period depends on the loan type and your financial recovery:

• Conventional loans (Fannie Mae/Freddie Mac): Typically require a 7-year waiting period after foreclosure.
• FHA loans: May be available in as little as 3 years if you’ve re-established good credit; sometimes sooner with documented extenuating circumstances and lender approval.
• VA loans: Usually require a 2-year waiting period , but potentially shorter with approved extenuating circumstances.
• USDA loans: Generally require a 3-year waiting period, with possible exceptions for extenuating circumstances.

In the meantime, improving your credit score, saving for a down payment, and showing steady income will strengthen your application when you’re ready to buy again.