What is a Foreclosure?

Learn More About Foreclosures

• Related Articles:
  • What is a Foreclosure?
  • Guide to Buying a Foreclosed Home
  • What is a Pre Foreclosure?
  • Fact and Fiction About Foreclosures
  • The Foreclosure Process for Your State
  • Foreclosure: How it Happens and what it Means for Investors
• Back to Articles

Foreclosure is the legal process by which real estate purchased through a mortgage or deed of trust is sold in order to pay back debt on a defaulted home loan. When a house is bought, the homebuyer usually seeks a home loan in order to afford his purchase. The lender proceeds to protect his interest in the property through mortgages or deeds of trust (depending on the state). Though mortgages and deeds of trust have subtle differences in regards to foreclosure processes, they essentially serve the same purpose. Each creates a lien on the property and assures the lender security on the home’s debt. When a homeowner fails to maintain his obligations to his home loan, the lender may sell the property in order to recover the owed debt — a process known as foreclosure. Foreclosed homes basically follow one of four patterns:

Types of Foreclosures

• The property owner pays a determined amount to reinstate his loan. The period in which this may occur is called pre-foreclosure and the grace period given to the borrower changes from state to state.
• The property owner sells the home to a third party during the pre-foreclosure period in order to resolve the debt with the lender without incurring a penalty on their credit score.
• A third party purchases the foreclosed property while it is up for auction or for sale by the lender
• The lender assumes ownership of the foreclosed home (i.e. bank owned properties) either through the borrower or at public auction, usually with the intent to re-sell the foreclosed property.

These alternate possibilities mean that those in the market for foreclosed homes have three opportunities to purchase a foreclosure. By purchasing during the pre-foreclosure period directly from the property owner, a prospective foreclosure home buyer has more time to research the title and condition of the foreclosed home but also risks the unpredictability associated with dealing directly with the borrower. A foreclosure home buyer will probably save the most money by bidding on a foreclosed home at public auction. This alternative, however, limits how thoroughly the title and foreclosed home condition can be examined. By buying a foreclosed home that a lender is re-selling, a foreclosure home buyer can rest assured that the title of the property is clear and that there’s more time to inspect the condition of the foreclosed home. The savings, however, tend not to be as high with bank-owned foreclosed homes as they would be in an auction or during pre-foreclosure.

Other Articles on Foreclosures

What is a Foreclosure?

Foreclosure is the legal process by which real estate secured by a mortgage or deed... read more

Guide to Buying a Foreclosed Home

Though the exact timeline of home foreclosure varies state to state, the same... read more

What is a Pre Foreclosure?

If you're considering buying a distressed property for your family or as a real estate investment, the pre-foreclosure period might be the best time to make your purchase read more

Fact and Fiction About Foreclosures

There are a number of misconceptions surrounding foreclosure procedures and foreclosed homes read more

The Foreclosure Process for Your State

Foreclosure proceedings vary in a number of ways from state to state. These... read more

Foreclosure: How it Happens and what it Means for Investors

Surely someone in 2006 came out with a bumper sticker that says 'Foreclosure Happens'; because the year represented one of the greatest surges in foreclosure filings in recent history... read more