This is the latest entry in BeenVerified’s legal term library designed to help you better understand public record information, criminal records and related terminology. The information in this article is provided for informational purposes only and does not constitute legal advice.
If you owe money on a mortgage and fail to pay it, you could face a foreclosure situation when the financial institution you owe seeks to reclaim the property from you. How long can an account be delinquent before being foreclosed upon? What are your potential options if you’re facing this situation? Read on to find out.
A foreclosure can be defined as a procedure by which the holder of a mortgage—an interest in land providing security for the performance of a duty or the payment of a debt—sells the property upon the failure of the debtor to pay the mortgage debt and, thereby, terminates his or her rights in the property, according to Burton’s Legal Thesaurus.
A debtor’s account will often be in default for a number of months before a foreclosure action is taken by the creditor (the bank or credit union that loaned the money for the purchase of a home or piece of land). This can vary by both the individual financial institution’s own policies and particularly by individual state law. This means that some homes are foreclosed on in a matter of a few months and in some extreme cases in can take years. This is largely due to the lengthy paperwork process a creditor must go through in order to avoid violating the detailed statutory procedural requirements needed to carry out a foreclosure, according to Investopedia.
Such detailed procedures related to foreclosures processes are partly due to the legacy of the great recession in 2008, when hundreds of thousands of mostly subprime homes were foreclosed upon, often by questionable means from banks, including the use of “robo-signing” foreclosure notices, according to NOLO.com. The end result of this widespread abuse by some mortgage issuers was that the foreclosure process became more detailed and slower overall.
Often seen in connection with foreclosure is the term “short sale.” A short sale occurs when the mortgage holder, in an effort to avoid foreclosure, sells the house for less than it’s worth. Investopedia notes that in a short sale, the borrower and lender come to an agreement that absorbing the loss on the difference between the sale and the original loan is preferable to foreclosure. While avoiding a foreclosure may be beneficial to some borrowers, the negative impact on his or her credit is still severe, according to Credit.com.
As you may have gathered, a foreclosure is part of the public record and will remain on the borrower’s credit report for up to seven years, according to FICO.
Forbes lists Rihanna, former heavyweight champ Evander Holyfield and OJ Simpson as notable celebrities who have had their properties foreclosed upon.