What is a foreclosure?

Summary: A foreclosure is a property that belongs to a lender. This usually means that the previous homeowner failed to pay the mortgage and had to give the lender the deed to the house. Most foreclosures are sold “as-is”, therefore, they are often bought, fixed up or “flipped,” and sold by an investor.

 

The Foreclosure Process

If a previous “homeowner” cannot pay the debt due on a property, the property goes to a foreclosure auction. If the property doesn’t sell at the auction, a lending institution takes possession of it. A foreclosure is also sometimes referred to as an REO (real estate owned) property. This means it is owned by a lender after an unsuccessful auction. A lender is typically a bank, government agency, or government loan insurer. Keep in mind, the previous “homeowner” really is a “borrower” because they had a mortgage they couldn’t pay and they have to give the house to the lender. A mortgage is simply a loan agreement for the purchase price of the home, not including the down payment.

 

Buying a Foreclosure

If you are considering buying a foreclosure, be sure you’ve thought through the pros and cons of this type of transaction. Buying a foreclosure requires careful budgeting, a good real estate team, and the mentality to see the purchase through.

The main reason you would want to consider purchasing a foreclosure is the potential for a great deal. Most lenders typically don’t want to keep the home and may be willing to offer the property at a discount to get it off their books. You can use a foreclosure status to your advantage if you’re willing to take a risk. In the best scenario, you can buy a house below market rate. Sometimes if you want to buy a larger house or a house in a more desirable neighborhood, purchasing a foreclosure may make that possible.


Definition According to Merriam Webster

Foreclosure (n): a legal proceeding that bars or extinguishes a mortgagor’s right of redeeming a mortgaged estate

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