What Is the Difference Between Foreclosure and Foreclosed?

While related, “foreclosure” and “foreclosed” describe distinct phases in a lender reclaiming property due to missed mortgage payments. Understanding the precise meaning of each term is important for anyone navigating financial challenges or considering real estate transactions. This article will clarify the separate uses of “foreclosure” as a process and “foreclosed” as a completed state or outcome.

Understanding Foreclosure

Foreclosure refers to the legal process initiated by a mortgage lender to repossess a property when a borrower fails to meet their loan obligations, typically by missing payments. This multi-stage process allows the lender to recover the outstanding debt using the property as collateral. The timeline for foreclosure can vary significantly by state, generally ranging from several months to over a year, with some states experiencing average timelines of 180 to 200 days, while others can extend beyond two years.

The process typically begins after a homeowner misses several mortgage payments, usually three to six months. Following these missed payments, the lender will often send a formal Notice of Default (NOD) to the borrower, which is sometimes also filed with the local recorder’s office. This notice informs the homeowner of the delinquent amount, including principal, interest, and any associated fees, and provides a deadline, often 30 to 90 days, to resolve the default.

If the default is not cured, the next step involves the issuance of a Notice of Sale (NOS), publicly announcing that the property will be sold at auction. This notice specifies the time and place of the sale and is typically published in a local newspaper and sent to the homeowner via certified mail. The actual foreclosure sale is a public auction, often held at a county courthouse, where the property is sold to the highest bidder.

Following the auction, some states provide a redemption period, a legally designated timeframe during which the original homeowner can reclaim the property. To redeem the property, the homeowner must pay the full amount owed, including the outstanding loan balance, interest, and any fees incurred. This period can range from as little as 30 days to up to two years, depending on state law and whether the foreclosure was judicial or non-judicial.

Understanding Foreclosed

The term “foreclosed” describes the state or status of a property or a person after the entire foreclosure process has been completed. It represents the final outcome or result of the legal actions taken by the lender. When a property is referred to as “foreclosed,” it signifies that ownership has been transferred from the defaulting borrower.

This transfer typically occurs after the foreclosure auction. If a third-party bidder successfully purchases the property, they become the new owner. However, if no third party bids an amount sufficient to cover the outstanding debt, or if the foreclosing lender is the highest bidder, the property reverts to the lender’s ownership.

When a lender takes ownership, the property is then classified as Real Estate Owned (REO). This status indicates that the property is now part of the bank’s or financial institution’s inventory. The term “foreclosed” is therefore an adjective or past participle, describing a property that has undergone and completed the foreclosure process.

Distinguishing the Concepts

Grammatically, “foreclosure” typically functions as a noun, referring to the action itself (e.g., “the bank initiated foreclosure”). “Foreclosed,” on the other hand, is generally used as an adjective or past participle, describing a property (e.g., “a foreclosed home”) or an individual (e.g., “the homeowner was foreclosed upon”). This difference in usage reflects their distinct meanings, with one denoting an event in progress and the other denoting an event that has concluded.

Implications of Each Term

Understanding the difference between “foreclosure” and “foreclosed” carries significant implications for various parties involved. For homeowners, being “in foreclosure” means they are still within a period where they might have options to avoid losing their home, such as negotiating a loan modification, pursuing a short sale, or arranging a deed in lieu of foreclosure. Once a home is “foreclosed,” the property is lost, and the former homeowner faces the severe credit consequences, including a potential drop of 200 to 300 points in their credit score, which can remain on their credit report for up to seven years.

For potential buyers, the distinction determines the type of property they might encounter. Properties “in foreclosure” often refer to pre-foreclosure listings, where a homeowner is attempting to sell before the process completes, or properties heading to auction. Properties that are “foreclosed” are typically Real Estate Owned (REO) properties, meaning they are now owned by the bank. These REO properties are often sold “as-is” and may require repairs, but lenders are usually motivated to sell them quickly, potentially offering competitive pricing.

Lenders also face different considerations. While a property is “in foreclosure,” they incur ongoing legal, administrative, and maintenance costs, which can average between $50,000 and $78,000 per foreclosure. These expenses include attorney fees, property inspections, and lost revenue. Once a property is “foreclosed” and becomes REO, the lender’s focus shifts to marketing and selling the asset to recoup their losses, often at a discount to facilitate a quick sale.