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What is Foreclosure?

Foreclosure for Sale

Many people have head of foreclosure homes but many people who could benefit from buying these properties are confused or unsure about what foreclosures actually are. Foreclosures are actually quite simple to understand. A "foreclosure" usually refers to a foreclosure home, or a home that has been repossessed. However, "foreclosure" can also refer to the foreclosure process, which is the legal process that lenders and government agencies rely on when foreclosing on a property.



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The Foreclosure Process

State laws govern foreclosure, so the foreclosure process varies from state to state. Generally, however, after a homeowner has failed to pay their mortgage for a specified period of time - one to three months, in many states - the lender can begin the foreclosure process. Usually, this is done by filing a lis pendens or Notice of Default, declaring the intention to foreclose. Until the property is legally taken away from the homeowner, the property is in pre foreclosure and the homeowner can still stop the foreclosure by paying off the debt or by arranging a short sale with the lender, whereby the lender agrees to have the home sold for less than the debt amount.

There are two possible types of foreclosures in the United States: non-judicial and judicial foreclosures. In judicial foreclosures, the lender must seek help from a court to secure the right to sell the property through an auction. In a non-judicial foreclosure, the lender does not have to go through the court system to take ownership of the property. Some states permit judicial foreclosures while some permit non-judicial foreclosures.

The foreclosure process ends when the homeowner meets their mortgage debt obligations or when property ownership is transferred and the homeowner loses the property. Depending on state laws and the specific terms of the mortgage, the property may eventually be owned by the lender, may be sold at auction, or may be transferred to the government agency that insured the home's mortgage.

Types of Foreclosures

Just as there are several types of foreclosure process, there are many different kinds of foreclosures. Even a quick glance at any foreclosure lists shows an array of different foreclosures. HUD homes, VA homes, and REO homes are quite common, for example. It is a good idea to understand the differences between these foreclosures before purchasing.

REO (Real Estate Owned) homes are properties that are being sold by the lender after foreclosure. In many cases, these homes have gone to a public auction but have been purchased by the lender or have failed to sell. VA homes are sold by the Department of Veteran Affairs. The last homeowner was a member of the military or armed forces. HUD homes are sold by the Department of Urban Housing and Development (HUD). These homes were last owned by a homeowner who had a government-insured mortgage. VA homes and HUD homes are sometimes called government foreclosed homes. Pre-foreclosure homes are not true foreclosures in that they have not been repossessed yet. They are being sold by a homeowner who wants to avoid foreclosure.

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