Foreclosure is the process through which a lender legally repossesses and sells collateral to cover an unpaid loan. A lender can initiate the foreclosure process when the borrower becomes delinquent on their loan payments and has failed to reach an agreement with the lender on an alternative repayment plan. The foreclosure is the lender's way of liquidating their collateral against the defaulted loan.

In most states, a foreclosure action is initiated with a Notice of Default. This document serves to file the public record and notifies the homeowner that they are in default of the loan and must repay the amount quickly or otherwise face foreclosure. If the borrower does not bring the loan current within a certain amount of time, the lender will move forward with the foreclosure process and serve the homeowner with a Notice of Sale.

The timeline of the foreclosure process can be a lengthy one, taking several months to complete. During the foreclosure process, the homeowner or the lender can request a court hearing or an auction of the property depending on the state in which the property is located. Often the foreclosure can be avoided or stalled if the homeowner is able to bring the loan current or complete a loan modification.

If the property is sold at auction or taken back by the lender, the foreclosure process is completed and the deed is transferred to the new owner. The homeowner may be liable for any deficiency if the proceeds from the sale do not cover the total loan amount. Depending on the state rules, the homeowner may also be held responsible for any unpaid real estate taxes associated with the property.

Foreclosure is a difficult situation for both the lender and the homeowner, and can take an emotional, as well as a financial, toll. Understanding the foreclosure process and your rights as a homeowner can help you work with your lender to try to avoid foreclosure. Also, many organizations provide resources and assistance for homeowners who may be in danger of foreclosure.