What is a Bank Foreclosure?

A bank foreclosure is the process by which a bank repossesses a home after its owner defaults on a mortgage loan. The process for foreclosure varies by jurisdiction and may require a court order, though in some cases a bank foreclosure can take place without the necessity of going before a judge. Foreclosure is generally a last resort action taken by a bank that has reason to believe that the home owner cannot and will not pay a mortgage. The bank forecloses on the home in order to recoup some of its losses.

Foreclosure is not typically a quick process, but the actual time frame for a bank foreclosure can vary considerably depending on a number of factors, including the laws in the area where the foreclosure takes place, bank or lender policy, and the area's real estate market. In some places in the United States, a foreclosure can happen within a few months of a home owner's first missed mortgage payment, though in some cases it may take years for the foreclosure to be ordered and the former home owner to be evicted. In most cases, a home owner will receive ample notice of a bank's intention to foreclose and in some places may be able to remedy the situation by requesting foreclosure assistance. This assistance may include one-time grants from government or private agencies, a mortgage modification in which mortgage payments are reduced, or forbearance that allows home owners to delay paying their mortgage payments for a period of time.

In many places, a bank foreclosure not only deprives a person or family of a home, but also severely damages the home owner's credit. The foreclosure can remain on a person's credit record for a significant period of time, up to seven years in the United States, making it difficult for him to get new credit, find employment, or even secure rental housing. Many home owners, even those who are in desperate financial situations, will attempt to avoid foreclosure by simply giving up the home to their lender voluntarily, thus avoiding the foreclosure process and its damage to their credit history. For example, the bank may agree to a short sale of the house, in which the home is sold for less than the mortgage loan balance, or a deed in lieu of foreclosure, in which the home owner turns over the house to the lender. In both cases, the bank typically forgives any shortfall between the what the home ultimately sells for and the remaining mortgage balance.