The term foreclosure gets tossed around a lot in real estate. But what does foreclosure actually mean? It’s the legal process when a lender attempts to recover the amount owed on a defaulted loan by taking ownership of the property and selling it. A borrower defaults on a loan when he/she stops making payments to the lender (more than 120 days late on payments).
How long does a foreclosure take?
The timeline and legal process varies from state to state. Sometimes foreclosures have to go through a judicial process, but some states don’t have this requirement. No matter the process, the outcome is the same—the mortgage borrower loses possession of the home. Foreclosed homes are then sold at auction or by banks/financial institutions in hopes of recouping some of the financial loss.
Why do foreclosures occur?
Borrowers are forced to stop making payments for a variety of reasons:
Loss of income—reduced work, layoffs and economic downturn can cause income changes.
Medical bills—unexpected bills, like expensive medical bills, can catch people off guard and cause financial issues.
Inability to work—injuries, illness or family members who need care can affect employment.
Divorce—divorces are expensive and life altering, and sometimes borrowers can no longer afford mortgage payments.
Expensive home repairs—expensive necessary home repairs can add up quickly, and can cause borrowers to fall behind on mortgage payments.
Buying a Foreclosed Property
While not all foreclosed properties are a great deal, usually they’re below market price because lender’s want to recoup some costs quickly. This allows buyers to get a home that they wouldn’t be able to afford normally. Plus, these homes could be in high-demand locations or have larger square footage a borrower could afford for a non-foreclosed home.
Other foreclosed homes are discounted for being in less-than-ideal condition. Some foreclosed homes are sold in “as-is condition” because the previous owners couldn’t afford repairs or damaged the home before leaving. Usually you can get a home inspection when you buy a home, but this might not be an option on a foreclosed home. You’ll also want to find out if the foreclosed home requires a cash sale or not.
Previous owner rights
State regulations for foreclosures vary, so you’ll want to research your state’s process and try to get information about foreclosed homes that interest you. First, see if your state has a “right of redemption” period that could allow the previous owner to catch up on payments and keep their home. Some evicted homeowners “squat” in their home and can be hard to get removed. With a foreclosed home, you won’t be able to know what repairs and maintenance were made in the past, which can be frustrating.
Want more info about foreclosed homes or want to purchase one? Contact us! We’re experts in many areas of real estate, including foreclosures, and would be happy to answer any questions that you have!