'Foreclosure' is explained in detail and with examples in the Real Estate edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.
Foreclosures represent houses or commercial properties that have been seized by a bank or other mortgage lender. These properties are then sold to recoup mortgage loan losses after an owner and borrower has not made the payments as promised in the mortgage agreement.
Foreclosure is also the legal procedure in which the lender gets a court order for the termination of the mortgagor’s right of redemption. This is the case since most lenders have security interests in the house from the borrower. The borrower will secure the mortgage using the house as the collateral.
Borrowers fall into home foreclosure for several reasons, most of which could not be predicted in advance. Owner might have been let go from their job or forced to take a job transfer to another state. They might have suffered from medical problems that prevented them from working. They might have gone through a divorce and split up assets. They could have been overwhelmed by too many bills. Whatever the reason, they are no longer able to make their promised monthly mortgage payments.
Foreclosures represent potential opportunities for investors. They may be purchased directly with a seller in advance of a bank completing foreclosure proceedings. Many investors who concentrate on foreclosures prefer to deal with the owners directly. They have to be aware of many laws pertaining to foreclosures, which are different in every state. For example, while in some states home owners can stay in their properties for a full year after defaulting on payments, while in others, they have fewer than four months in advance of the trustee sale.
Practically all states also allow a redemption period for the delinquent homeowner. This simply means that a seller possesses an irrevocable ability to catch up on back payments and interest in order to retain ownership of the house. The owner will likely be required to pay any foreclosure costs experienced by the bank up to that point.
Another means of purchasing a foreclosure home is to buy it at the Trustee’s Sale. When this means is pursued, it is better to bid on a house that allows you to look it over in advance of putting up an offer. This is helpful so that you can determine how many repairs will be needed to make it salable and even possibly habitable. It is also worth knowing if the occupants are still living in the house and will have to be forcefully evicted. The process of going through an eviction can be both expensive and time consuming.
Many Trustee Sales will have certain rules in common that have to be followed for a foreclosure house to be purchased. They may demand sealed bids. They could require you to demonstrate your proof of financial qualifications. They might similarly insist on you putting up a significant earnest money deposit. Many of them will state that the property is being purchased in its present condition, or as is.