Foreclosure
Definition
When a lender takes back a property because the borrower stopped paying the mortgage. The lender sells the property to recover their loan. Catastrophic for your credit (drops 100+ points) and takes 7+ years to recover from.
Why It Matters
Foreclosure is one of the worst financial disasters possible. It destroys your credit, makes it hard to borrow for years, and can trigger tax consequences. Understanding the foreclosure timeline helps you avoid it or know your options.
Example
Miss 3 mortgage payments. Lender starts foreclosure process. After 6-12 months, they can auction your home. You lose the house and your down payment. Credit score drops from 750 to 580. Future borrowing costs thousands more.