Understanding the foreclosure process.

The legal process known as foreclosure is when a lender takes ownership of a mortgaged property and then sells it to recoup the money owed on a loan that has been defaulted on by the borrower. Default is usually triggered when a borrower misses a certain number of monthly payments. Still, it can also happen when the borrower fails to meet other terms in the mortgage document. In most cases, default is triggered when a borrower misses a specific number of monthly payments.


The legal basis for the foreclosure process is a mortgage or deed of trust contract, which grants the lender the right to use a property as collateral if the borrower fails to uphold the terms of the mortgage document. This provides the lender with the ability to initiate the foreclosure process. When a borrower defaults on their mortgage or misses at least one payment, foreclosing on their home typically gets underway. However, the specifics of the procedure can vary from state to state.

The lender will send a demand letter after the borrower has missed two payments. This is more serious than receiving a notice that you have missed a payment; however, the lender may still be willing to work out a plan for the borrower to catch up on the missed payments.

After ninety days, in which no payments have been made, the lender will send a notice of default. The loan is then turned over to the lender’s department that handles foreclosure. The borrower typically has another thirty days to make up any missed payments and get the loan back into good standing (the reinstatement period).

Foreclosure in different states.

Judicial foreclosure is the standard procedure in 22 states, including New York, Florida, and Illinois. In this process stage, the lender must demonstrate to the court that the borrower is in default to receive permission to proceed with the foreclosure.

Most foreclosures in the remaining 28 states, including Arizona, California, Georgia, and Texas, are carried out through a process known as nonjudicial foreclosure or power of sale. This foreclosure process is typically much quicker than judicial foreclosure, and it does not involve the courts in any way unless the homeowner sues the lender.


A wealth of information is available concerning foreclosures, including how and why they occur and what happens afterward. It is essential to understand that the cause of foreclosure is the default on a loan or the inability to pay off a mortgage. When a single borrower falls behind on their payments, the default process begins with that borrower’s loan. After a waiting period of ninety days, the lender has the right to issue a formal notice of foreclosure and, if the debt is not paid in full, to take complete ownership of the property.

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Frame, W. Scott. “Estimating the effect of mortgage foreclosures on nearby property values: A critical review of the literature.” Economic review 95 (2010).