Defining Foreclosure
Buying a home is a dream of many, but when it comes to making deals in the real estate market, be it buying or selling a property, it is important to be aware of certain terms and their meanings. One such term is foreclosure. When looking at property listings, seeing the word “foreclosed” in front of a property may be a bit worrying, but if you are still willing to buy a foreclosed property you need to understand what this term actually implies.
What is Foreclosure?
Whenever a property or home is bought by borrowing a loan from a bank or lender, the homeowner needs to repay the loan amount in the specified amount of time. In case, the homeowner fails to repay this amount, the home or property is considered to be in foreclosure. This means that the ownership of that home or property shifts from the owner to the bank or lender.
Foreclosure can also happen if the homeowner fails to pay the property taxes levied upon them. To understand foreclosure a little better, you should know three important terms—foreclosure, home in foreclosure and foreclosed home or REO. Foreclosure is the legal process in which the ownership shifts to the bank or lender if the homeowner fails to pay the loan; home in foreclosure is the property undergoing the foreclosure process and foreclosed home or REO refers to the property which has gone through the foreclosure process and is now owned by the bank or the lender.
After the foreclosure process is completed, the bank or lender who is now the owner of the home or property has the legal right to sell the property in an attempt to get the mortgage which was not paid earlier by the owner. The buyer cannot oppose this because at the time of loan approval the property or home is used as collateral which can be taken by the bank or lender in case the buyer fails to repay the loan amount.
There are many reasons like sudden loss of employment, financial crisis, unexpected medical bills,etc. for a home or property to go into foreclosure. All of these reasons affect the owner’s financial conditions and may lead to mortgage default, which then eventually leads to the home going into foreclosure.
As far as buyers are concerned, there may be some risks involved in buying a foreclosed property and hence a thorough research should be done before making the final decision.
