What is Foreclosure? Foreclosure is a legal process in which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments to the lender by forcing the sale of the asset used as the collateral for the loan.
Buying a foreclosure property often delivers greater returns than buying a traditional property. But not all foreclosure properties are alike. Which one makes the most sense for your investment strategy? Breaking down the differences in types of foreclosures.
Pre-foreclosure properties—homes in the earliest phase of the foreclosure process.
Auction properties represent the highest potential returns – but come with the highest degree of risk.
Bank-owned homes are less risky than auction properties and may offer slightly better returns than pre-foreclosure homes.
Investors need to find out how much is actually owed to the lender before agreeing to a sale a preliminary title search will usually turn up other encumbrances on the property, like a second mortgage, tax liens and mechanics liens.
Also remember that financially-distressed homeowners often let maintenance slide, so having an inspection done is critical.