What Is a Foreclosed Home? A Quick Guide

Did you know that investors still consider real estate as the most popular investment? If you’re asking the question, “What is a foreclosed home?” we can help.

In this guide, we’ll explain what causes a house to become foreclosed and why people buy them.

Want to learn more? Keep reading.

Defining a Foreclosure

With a foreclosure, a mortgage will form a lien against a property. The lender has legal rights to move in and take ownership if the borrower defaults on the payment.

Buyers and investors will then buy these houses at auction or from the government or bank.

After they get control of the house, the lender will sell the property and regain their losses. The process’s called foreclosure.

Causes Behind Foreclosure

Foreclosures occur if the homeowner fails to make agreed-upon payments on the mortgage. The reasons behind the nonpayment will vary.

Income loss or job loss are some examples that cause foreclosure. Credit card debt or medical bills will also make it challenging to remain afloat.

A foreclosure will often result from divorce, disability, and bankruptcy.

What About the Right of Redemption?

Some states will have a situation called the right of redemption. It’s a time frame where the owner will have the chance to catch up on their home payments so they can get it back.

Difficulties With Buying a Foreclosed Home

The previous owner might end up squatting in the house and staying after it’s sold. This is where it gets difficult to remove the previous owner.

The previous homeowner won’t remain involved with the sale. It’s a challenge to know what repairs have already occurred before you end up moving into this house.

Offers will need more than one approval, and it will take a little longer for sales to move forward.

What About Negotiations?

It’s a little more difficult to buy a foreclosed house than a traditional seller. Negotiations can take longer than your typical house selling process.

Banks will try to get back a lot of what they lost. This will often result in a counteroffer and needs to get approved by a few people.

Some people include a home inspection clause and negotiate on repairs and pricing. These requests and deals aren’t allowed if you buy a foreclosed home at auction.

You Can Prevent Foreclosure

You should look at speaking to your lender right away. There are different options to keep you in your house. The foreclosure process will cost the lender tons of money, and they want to avoid it like you.

What About the Property Being Underwater?

A borrower will stop paying the mortgage due to the property being underwater. This refers to when the mortgage will exceed the value of the house.

The bottom line is the borrower won’t or can’t meet the particular terms of the loan.

What Is a Public Notice?

After six months of missed payments, the lender records a public notice with the County Recorder’s Office. This reveals that the borrower defaulted on the mortgage.

In some states, it’s called a Notice of Default (NOD).

The lender might also have to post a notice on the front door of the house’s property. The information makes sure the borrowers are aware they are in danger of losing the rights to the property.

They might end up getting evicted from the premises.

What About a Pre-Foreclosure?

The borrower will have a grace period after getting a NOD from a lender. The grace period is called the pre-foreclosure. At this point, between 30-120 days, there are local regulations.

The borrower could work out a deal with the lender through a short sale or pay the remaining amount owed.

The foreclosure will stop if the borrower pays off the default during this phase.

The borrower can avoid the sale and home eviction. If the default doesn’t get paid off, the foreclosure will continue.

What Are the Consequences of Foreclosure?

If the property doesn’t sell at an auction, the lenders will take ownership of the property. They end up with an accumulated portfolio of foreclosure properties, called real estate owned (REO).

A foreclosed property is accessible on banking websites. Are you a real estate investor? The bank will sell these properties at a super discounted price.

Were you the borrower? A foreclosure will show up on your credit report in a month or two. Unfortunately, the foreclosure will stay here for seven years from the beginning of the missed payment.

Once the seven years pass, the foreclosure will get removed from the credit report.

Real Estate Opportunities

If you’re an investor and want to get into real estate, consider a foreclosure property. You could end up getting land for super cheap or a home.

As an investor, it would help if you have the skills to renovate the property. This way, you can sell the house for more money in a couple of months.

Consider this opportunity. Do you need to sell your house super fast? Consider searching the terms, “we buy houses.”