If you fall far enough behind in your mortgage payments, you'll likely lose your home to a foreclosure. "Foreclosure" is the legal process that allows a lender, or the subsequent loan owner, to sell your property to satisfy the debt you owe.
The key parties involved in most home loan transactions and foreclosures are:
Buying a home normally involves a large amount of money, so it's common for a buyer to take out a loan rather than pay the entire amount in cash. As part of a home loan transaction, a borrower typically signs two main documents: a "promissory note" and a "mortgage" (or "deed of trust").
A "promissory note" is the document that contains a borrower's promise to repay the amount borrowed.
A "mortgage" or, in some states, a "deed of trust," is the contract that gives the lender the right to foreclose if the borrower doesn't make payments on the loan. When the lender records this document in the land records, it creates a lien on the home.
Promissory notes are transferable, and banks often buy and sell home loans. When a loan changes hands, the promissory note is endorsed (signed over) to the loan's new owner.
The seller documents the transfer by recording an assignment of the mortgage or deed of trust in the land records.
If you default on your loan by falling behind in payments or breaching the agreement in some other way, the servicer will probably refer the loan to an attorney or trustee for foreclosure.
Foreclosure works differently in each state, but the two basic types are judicial foreclosures and nonjudicial foreclosures. Usually, a foreclosure won't start until you're more than 120 days delinquent.
You own your home up until the foreclosure sale. So, you may legally stay in the property until this time.
In addition, depending on state law, you might be able to stay in the home until the redemption period expires or until some other action, such as ratification of the sale, occurs.
Some states have laws giving a foreclosed homeowner the right to regain ownership of the home, called "redeeming" the property, after a foreclosure sale by reimbursing the buyer for the amount paid at the sale or by repaying the full amount of the mortgage debt.
Sometimes, a foreclosure sale doesn't bring in enough money to fully repay the home loan. When this happens, the difference between the sale price and the amount owed is called a "deficiency."
In some states, the foreclosing party can get a personal judgment called a "deficiency judgment" against the borrower for this amount.
Depending on state law and your individual circumstances, you might have a defense against a foreclosure. A few potential foreclosure defenses include:
While this article provides a general picture of how foreclosure works, laws vary from state to state. To get specific information about your state's foreclosure procedures and how they apply to your particular situation, consider talking to a local foreclosure attorney.