Can default on a construction loan result in foreclosure?

Construction loan foreclosure is a very real risk if you stop making payments on your construction loan. A construction loan is a special loan that is given to you to build a new house. When you sign the papers for a construction loan, the bank owns the home and has the right to foreclose on it just the same as any other house.

Construction loans work by paying the builder of the home on a series of draws. In other words, a set amount of money is given to the builder at periodic intervals during the construction process. If at any point during this process you stop paying payments, the bank can seize the home (even if partially constructed) and put it up for sale at a foreclosure auction. The bank's course of action (i.e. stopping the draws or continuing the draws and letting the house be finished) will vary depending on what stage you default at. 

If you have a construction loan that you can no longer afford to pay, it is important that you explore all your options. Consider speaking with an experienced foreclosure attorney who can help you to determine what legal options you have and how best to handle your inability to pay your loan.