What is a Foreclosure?

There are often times when a home owner who has secured a mortgage loan is unable to pay it back. When several payments have been missed the lender makes note of it and send a default statement after which the borrower has the option of repaying his debt along with court fees in the designated time period.

How Does The Foreclosure Process Work?

Although the time period may vary as per state laws, it is usually a little over a month. This is when the house has officially gone into foreclosure and is in danger of being repossessed by the bank that is a senior lien creditor and issued the primary loan for the house.

The house cannot be sold until all the initial stages have been fulfilled such as summoning the borrower to court and giving him an adequate period of time to clear his dues and keep the house. He and his family are not evicted outright but are sometimes given several months to clear off their debts.

During this court appointed time the borrower may try to strike an agreement with the bank or the lending institution so that a loan modification proposal can be decided upon. This program may include solutions such as quickly selling off the house to recoup the entire amount or raising the money from somewhere.

The bank itself is not going to be interested in keeping the house very long in its dormant state even when the foreclosure is complete because they need to recoup the money they put into the real estate so they will either put the house on the open market or try to auction it off.

A local MLS service might be used to reach buyers and the bank is not interested in overwhelming profit as long as they get the full amount they are owed. The house may be sold for less than its current price as the bank may be selling it according to the loan amount which was agreed many years earlier.

Foreclosed houses tend to be a risk in the sense that they are completely empty and they may also have been intentionally damaged by the previous owner. This is a common practice because of the humiliating process of the foreclosure and this means that the new owner may be confronted with some unpleasant surprises. Rest assured the bank is not going to invest in the property further even if it is in need of maintenance.

A foreclosed property is often marketed as an opportunity since they are usually sold at below their market prices for obvious reasons and some people have actually made a business out of buying foreclosed properties and then reselling them at a profit.

In the process of a foreclosure the junior lien creditors are also repaid which does not happen in the event of a short sale which is why they prefer foreclosures to the alternative. Banks however tend to look for other options along the way since a great deal of time is wasted in foreclosing and it proves to be expensive for all the parties involved.



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Kirk Mullen's life goal is to travel the world while living off investments. He's currently mastering real estate investing, thanks to his never ending thirst for information online. This site is his culmination of opinions gathered on real estate investing courses, guru's, and other mentors he aspires to be like.