What is Foreclosure?


Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice. The foreclosure process can end one of four ways:

 1.     The borrower/owner pays off the default amount to reinstate the loan during a grace period determined by state laws. This grace period is also known as pre-foreclosure.

2.     The borrower/owner sells the property to a third party during pre-foreclosure. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.

3.     A third party buys the property at a public auction at the end of pre-foreclosure.

4.     The lender takes ownership of the property, usually with the intent to re-sell. The lender can take ownership through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction. These are also known as bank-owned properties. 

 Here are a few tips for foreclosure investors and homebuyers seeking bank-owned properties:
 

·         Real estate investing, like any investment strategy, is part of an overall financial plan. Before jumping into buying bank-owned real estate, understand the real estate laws, tax ramifications and other financial issues.
 

·         Consult with a tax or financial adviser who can help you assess your financial situation. Get your financial house in order first — that way, you know how much house you can buy.
 

·         Don't think that foreclosure investing is easy. For every successful real estate investor, there are countless others who have failed. Make sure you spend time studying the market.
 

·         Seek professional help. Hire a real estate agent or an attorney with foreclosure experience.