What Is Foreclosure?

Foreclosure Homes

Foreclosure is the process that allows a lender to sell the property of a homeowner who has defaulted on their mortgage. Basically, when a homeowner stops making payments on their mortgage loan, the lender will have to seek a foreclosure to get back the money they've lost on the unpaid loan. By holding a foreclosure sale of the property under mortgage, they are able to use the proceeds of the sale to cover the unpaid mortgage debt.

How does Foreclosure Work?

Foreclosures follow a general timeline and process that is important to understand before you start trying to buy foreclosures. However, the foreclosure process also varies significantly from state to state, so it's always important to check out the local laws concerning foreclosure in your area. In some places, the foreclosure process may allow you a great deal of time, while in others you may have only a short period in which to take all the necessary steps to prepare for a purchase. Knowing your local laws is always a good idea before you even start pursuing distressed properties.

The Pre-foreclosure Stage

The foreclosure process starts off with a mortgage default by a homeowner, meaning that they fail to make the necessary payments toward their mortgage. Once this happens, the lender will issue a Notice of Default and present it to the homeowner. The Notice of Default will explain how much the homeowner owes and provide a deadline for the homeowner to pay their debt. The Notice of Default marks the beginning of what is called the pre-foreclosure stage. The pre-foreclosure stage covers the entire period of time after a default, but before a foreclosure sale. If the homeowner pays off their default debt within the time allowed by the Notice of Default, the pre-foreclosure stage will end, and the homeowner will resume normal payments of their mortgage. However, if they do not pay the default in the specified time frame, the lender will move to schedule a date for a foreclosure sale of the property, either by issuing a Notice of Sale or consulting a local court.

Judicial and Non-Judicial Foreclosures

Here again, local laws come into play. In some states, a lender may be allowed to pursue a foreclosure on their own after a default, without any court supervision. They'll be able to issue a Notice of Sale themselves, and set a time for the sale to occur. The law usually requires a certain amount of time to pass between the Notice of Sale and the sale date (which can range from 3 weeks to 6 or more months), but other than that, they will be held to no other accountability. This is called a non-judicial foreclosure.

Some states require judicial foreclosures, which means the lender must file a suit with a court, known as a Lis Pendens, before beginning the foreclosure process. The court will hear the case, and if it approves, they will issue an auction date for the foreclosure sale of the property. In most cases, a representative of the court will also conduct and oversee the sale when it occurs.

Pre-Foreclosure and Short Sales

Often times, in order to avoid a foreclosure, the owner will seek to sell their property before the foreclosure sale date. This will allow them to pay off their debt and walk away from the default without a foreclosure ruining their credit and home ownership history. However, in some cases, a homeowner's property may be worth less at the time of default than they originally paid for it. This is sometimes referred to as an 'underwater' mortgage. In this case, many homeowners will seek a short sale of the property. A short sale, if agreed to by the lender, will allow the homeowner to sell the property for less than they bought it for, and use the money to pay off as much of their debt as the sale price allows. Again, the lender must agree both to a short sale and the final price of the property. But they can be good deals for investors and great ways for homeowners to avoid foreclosure.

The Foreclosure Auction

If the property is not sold before the date of the foreclosure sale, it will be auctioned off as scheduled. The auction usually happens in a public place or at the property itself, and is presided over either by a local Sheriff or court appointee or a trustee of the lender, in the case of non-judicial foreclosure. The auction will be open to the public, and anyone may attend and bid on the property. The property will be awarded to the highest bidder, who will then have to provide proof of financing, and usually a down payment on their winning bid. Within a few days, the winning bidder will have to provide the full amount of their bid, and will then be awarded control of the property.

The Period of Redemption

In some states, the original homeowner may be entitled to a period of redemption after a foreclosure sale is complete. During this time, they may regain control of their property if they pay off the full loan debt plus any associated interest, costs, or fees. While this rarely occurs, it's important to be prepared for as a buyer. In some areas, the period of redemption may last for up to a year.

Buying Foreclosure Homes

Buying home foreclosures can be a fantastic way to save money on a new home or get a great value on real estate investment. Since lenders usually only need to collect an unpaid portion of the full value of a mortgage through foreclosure, many foreclosures can be undersold while still covering the debt owed. In addition, most lenders are eager to sell foreclosures, and selling them for less than their full value encourages a quick sale. As a result, most foreclosures sell for anywhere from 30% to 60% off what they are actually worth, simply because they're sold as repossessed homes. This is a value you won't find anywhere else on the real estate market, and can make home ownership or investment more affordable than you'd ever thought possible. Best of all, you have total control over the purchase. You don't have to negotiate through man agent, you get to bid directly at auction or negotiate directly with the lender!

Is Foreclosure a Profitable Investment?

Foreclosures can be one of the most profitable investments on the real estate market. Since they can be bought for up to 60% off what they are worth, you'll earn instant equity in your purchase by buying below market value. This means you could actually turn around right after a foreclosure sale and re-list the property on the open market for its full value, and profit immediately! As with any real estate purchase, you can increase the value of your purchase by considering how valuable the property is because of other factors like location and desirability, and whether it's in a growing neighborhood with rising property values. When you combine a desirable home or location with the savings available on foreclosure, you've got a recipe for an extremely profitable investment. To learn more, check out our foreclosure investing page and learn how you can take advantage of these valuable properties.

What are the Types of Foreclosures?

Foreclosures come in all shapes and sizes. They can be homes, apartments, condos, multifamily units and complexes, or even commercial properties. And the sources for foreclosures can be just as diverse. Foreclosures are available from banks and government agencies of all kinds, including the Departments of Housing and Urban Development (HUD), Veterans Affairs (VA), Federal Housing Authority (FHA) or even the U.S. Department of Agriculture (USDA). There are also plenty of government homes out there available through Fannie Mae foreclosures and Freddie Mac foreclosures. While most of these properties are available through foreclosure auctions, some are also available for purchase direct from the bank or agency. These are known as REO, or 'real estate owned' homes, and they can be purchased for the same discounts as other foreclosures, but might appeal to buyers who want to buy through a less hectic sale than an auction. To learn more about the different types of foreclosures, visit our bank foreclosures, HUD foreclosures & VA foreclosures page.

How To Find Foreclosures?

In the past, buyers had to spend hours of their own time searching through newspapers, real estate magazines, and county records to turn up just a few local foreclosure listings. At , we've created a service that allows you to skip all that hard work and find hundreds or thousands of local or regional foreclosure listings within seconds. Every day, we update our nationwide database of over 2 million foreclosure properties for new listings, and make them available to our members with a convenient search feature. Decades of experience in the industry means we have contacts in all real estate arenas, including banks and government agencies, so that we can bring together a comprehensive database of foreclosures from across the nation. Search our database for foreclosure homes in your area today to start viewing detailed listings with all the information you need to narrow down your search to the homes that meet all your needs!

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