What to Know About Foreclosure And How To Avoid It!

What we’ve learned over the last few years is both good and bad. Though we’ve realized that unforeseen disasters (fires, hurricanes, tornadoes, pandemics, and so much more) are just that—unforeseen, we’ve also been witness to our own resilience. 

When we are hit with the loss of income, illness, injury, medical bills, divorce, and any other myriad calamities, financial hardship isn’t far behind. With that can come the fear of foreclosure on the place you call home. Here we will discuss what a foreclosure is, how long the process takes, and how you can avoid, reverse, or alleviate the process. Remember you are not alone! There is help out there—let us show you where to look. 

What is a foreclosure?

A foreclosure is a legal process by which a lender attempts to recover the money they are owed on a defaulted loan. One defaults on a loan when they fail to make the required payments for a designated amount of time or if they fall short of some other requirement laid out in the “mortgage document,” according to Investopedia. With the loan in default, the lender can take ownership of the property and sell it, recovering their investment.

This process varies from state to state. However, the lender will typically attempt to work with the borrower to get caught up on their payments before starting the legal process. 

How long does a foreclosure take?

First, the homeowner would need to default on the loan. This happens when either they have failed to make payments for a certain amount of time (the industry standard is 120 days or four missed payments, but it can vary) or they have failed to meet a requirement agreed to in their mortgage filing. However, there will be steps along the way to default that will allow the borrower to get caught up.

At 30 days overdue, the borrower will receive a notice of missed payment. If there is no payment for another 30 days (or two payments), there will be a demand letter sent out. 90 days overdue will bring a notice of default, which will need to be remedied within 30 days to avoid being sent into full foreclosure. 

After foreclosure has been initiated, the process and length vary greatly from state to state. If the state allows nonjudicial foreclosures, then all that needs to be done is the filing of the proper paperwork—these foreclosures move along quickly. A judicial foreclosure, on the other hand, requires court approval at several points along the way. Judicial foreclosures take longer than nonjudicial.

The average length, from start to finish, of foreclosure in Q3 of 2019 was 841 days. However, following the pandemic, these timelines have grown longer. The important thing to know is that there are multiple options along the way for borrowers to get caught up and stop the process.

Can the foreclosure process be stopped once it has started?

Yes! The foreclosure process can stop at several points throughout the process. Before a notice of default is even sent, the homeowner can try to arrange with their lender to get caught up on their payments. After the notice of default, there are another 30 days to work out a plan. In most cases, the foreclosure process cannot begin until the borrower is more than 120 days overdue on their payments. 

Additionally, the borrower has until their home is auctioned off to stop the process, and in some states, there is a redemption period after the bill of sale in which they can still pay off their debt and keep their home. 


Whether the process has begun or not, the homeowner should receive a mortgage reinstatement letter at some point. This letter will give them a reinstatement quote that includes any late fees, interest, missed payments, and foreclosure costs up until that point. If they can pay this lump sum amount, the mortgage loan will be reinstated, free and clear.

Short Refinance

If paying a lump sum to catch up on mortgage payments isn’t an option, the borrower might want to inquire if their lender would consider a short refinance. Foreclosure is also a financial burden on the lender. In lieu of that, the bank or lender that financed the mortgage may agree to replace the existing loan with a loan at a reduced balance, forgiving the difference. 

The principal reduction could lower payments, making it easier to pay them. This also saves the lender from the cost and hassle of foreclosure. However, this will hurt the borrower’s credit score if the lender agrees to it in the first place.

Mortgage Forbearance

Should the homeowner’s financial hardship be temporary, they may want to request a mortgage forbearance. This will suspend payments for an agreed-upon amount of time to help them get back on their feet. However, they will have to pay back the entirety of the payments they missed at the end of the agreed-upon forbearance period. Payment can be negotiated as a lump sum or a payment plan. The good thing is, they’ll have some time to recover and won’t be accruing late fees.

Loan modification

Another option is to ask the lender for a loan modification. As Quicken Loans states, “A loan modification makes changes to your loan terms with the goal of lowering your monthly payments. A modification can lower your interest rate, extend the time you have to repay your balance or change your loan type.” A mortgage modification can help the borrower avoid foreclosure and bring payments down to something they can afford. And even though it will still affect their credit score and history, it won’t be nearly as bad as a foreclosure.

Can foreclosure be avoided even if the home can’t be retained?

If none of the above are options, the homeowner might need to come to terms with the fact that they might have to lose their home. However, there are still a couple of ways to avoid foreclosure and the full brunt of its consequences.

Short Sale

With a short sale or preforeclosure sale, the borrower would propose to the lender a sale of the property for less than the balance on the mortgage. The lender would recoup most, if not all, of their investment and the borrower would be out from under the pressure of their mortgage payment. This will damage the borrower’s credit (again, not as much as a foreclosure would), they’ll walk away with nothing, and they still need to get approval from the lender which can be difficult. Yet, it might be worth it in the long run.

Deed in Lieu of Foreclosure

A deed in lieu of foreclosure is the absolute last-ditch effort to avoid foreclosure. This is a document that “voluntarily transfers the property’s title from the homeowner to the mortgage lender in exchange for a release from the mortgage obligation,” according to Quicken

Even though it is better than a foreclosure, it still has major consequences. The homeowner’s credit will be damaged, they’ll be unable to purchase another home for up to four years, lose their equity, and they may have to pay the difference between the selling price and mortgage remainder and face tax liability. Are avoiding the losses of foreclosure and possibly getting a cash incentive to move worth all that? Perhaps.

What does foreclosure mean for credit?

A foreclosure will appear on the borrower’s credit report within a couple of months and will remain there for seven years. It will lower their score significantly. However, even more important is the influence it has on lenders. A lender seeing that a prospective borrower has a foreclosure in their past is very unlikely to find them eligible for a loan. According to Experian, “it's safe to say all lenders consider foreclosure a serious derogatory event in your credit history, second only to bankruptcy in terms of severity. Many creditors won't even consider applicants with foreclosures on their credit reports…” For the more lenient lenders, there will still need to be several years between a new loan and the borrower’s foreclosure. 

In Conclusion

The best way to face foreclosure is not at all. Work with your lender and realtor to ensure that you are buying a property and taking out a mortgage that you can afford. Put money aside when you can to cover yourself in case of unforeseen circumstances. However, if you still find yourself in a position where you are afraid you might default on your loan, there are options and you are not alone—but act quickly!

Keep In Mind

It is important to keep in touch with your lender if you are concerned about not being able to make your mortgage payments. Many lenders are going to do what they can to keep you in your home and making payments. Don’t wait until there is nothing they can do!  

If you are afraid that you might be in danger of foreclosure, there is help out there. Take a look at this brochure to start early and avoid foreclosure.  

Where does Code of the West Real Estate Come In?

Here at Code of the West, we hold your best interests as our highest priority. When buying or selling a home with us, rest assured, that we will help you make a decision that you can live and thrive with. 

We specialize in Southern Colorado Real Estate and mountain homes for sale! If you are looking to buy or sell, contact one of our dedicated and experienced Realtors® today!

While you’re here, read more on mountain homes for sale in Colorado, and things to do near some of our primo Durango Real Estate in these informative blogs–5 Best Places to Buy a Mountain Home in Colorado, What to Know About Owning a Mountain Home, Spring Hikes Not to Miss (In Durango!), and Things To Do in Durango-Spring 2022

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