A foreclosure happens when an owner defaults on the mortgage
payments for a property.
Property in foreclosure is often referred to as distressed property
because the owner is in financial distress and has usually missed
several mortgage payments. The owner's financial distress can
be caused by a variety of unfortunate circumstances, but it
often results in a potential bargain buying opportunity for
an interested buyer or investor.
The foreclosure process doesn't just happen overnight. A typical
foreclosure timeline can extend more than three months. The
different stages of foreclosure offer different types of opportunities
for the buyer.
Buying a property in pre-foreclosure involves approaching the
owner in default with an opportunity to escape the situation
free of mortgage debt and without a foreclosure on his or her
credit history. For the buyer, pre-foreclosures offer potential
discounts of 20 to 40 percent below market value, but still
give the opportunity to research the title and condition of
If the default is not resolved by the end of the pre-foreclosure
period, buyers can attend a public auction scheduled by a trustee
that is working on behalf of the lender. Buyers are typically
required to pay in cash and may not have much notice to research
the property beforehand; however, the foreclosure sales often
offer some of the best bargains, sometimes as much as 35 to
50 percent below market value.
(Real Estate Owned by the Lender):
Sometimes the lender will buy back the property and resell it
if it thinks that is the best way to recover any losses on the
property. The lender will probably make sure the title is clear
for any buyer, but the potential bargain is typically less than
buying pre-foreclosures or at foreclosure sales.
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