Definition
The legal process a lender uses to take and sell a home after the borrower stops paying the mortgage. Timelines vary by state from a few months to years. The foreclosure stays on the credit report for seven years and usually blocks a new mortgage for several.
Why it matters
Foreclosure is the worst-case exit from a mortgage: lost home, equity consumed by fees and a forced sale, and years of damaged credit. Lenders generally lose money on it too, which is why loan modifications and other workouts are often available to borrowers who call early.
Example
After a job loss, a homeowner misses six $1,800 payments. The lender forecloses, the home sells at auction for less than a normal sale would bring, fees consume much of the remaining equity, and the borrower rents for years while their credit recovers. Calling the servicer at month one about a modification could have paused the spiral.
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.