Foreclosure is defined to be legal recourse in which a bank or lender repossesses a parcel of real property upon a homeowner’s failure to maintain the obligations set forth in the promissory note. The bank takes back possession via a sheriff's sale with the intent to sell the property themselves.  The amount of that sale goes towards will satisfying the outstanding mortgage balance. As is often the case, the funds generated by such a sale auction are insufficient to satisfy the lien, and the homeowner is left open to the possibility of the lender filing in court for a deficiency judgment.

The time taken to initiate a foreclosure varies from state-to-state, though three months would be a safe benchmark to go by. In many states, the lender has legal right to start the foreclosure proceedings after three months of delinquency. Customarily, the lender would contact the homeowner fairly early, at just 16 days of delinquency. At that point, the lender would suggest a few options to make the situation more comfortable; mitigation of terms, deed in lieu, or, upon qualification, a refinance. 

If the situation should deteriorate to the point of being 90 days late, the lender will more than likely employ the aid of an attorney to initiate official foreclosure proceedings. A letter will go out to the homeowner, usually stating a dollar amount required to bring the mortgage “current” and back to good standing. This is followed by the foreclosure notification, which actually lists an actual date for the foreclosure auction (sheriff's sale), as well as a preliminary list of the costs involved with the foreclosure.

As mentioned before, the funds collected upon sale of the repossessed home are usually not enough to satisfy the amount of the mortgage. A foreclosure property usually nets, at most, 40 or 50 cents on the dollar. Often times, the lender’s final step is to have a deficiency judgment  filed. This is a court judgment requiring the homeowner to repay the amount still owed the lender after sale of the property. The deficiency judgment  may also stipulate that the homeowner is responsible for paying all the fees associated with the foreclosure as well. 

The consequences of a foreclosure are vast and should be avoided if at all possible. The credit score of the homeowner is damaged by a loss of around 280 points. The foreclosure stays on your record for 7 to 10 years.

Homeowners facing the threat of foreclosure should look to alternative routes whenever possible. Deed in lieu of foreclosure, a short sale and mitigation of terms are three possible avenues that may offer homeowners relief from their situation and help them avoid foreclosure entirely.