Foreclosure

"Foreclosure" is a legal term referring to a proceeding undertaken by a bank or other secured creditor when a borrower has failed to meet the terms of a mortgage. The lender seeks to recoup their investment by repossessing the property in question.

In the United States there are two common types of foreclosures. In one instance, known as "deed in lieu of foreclosure" the bank takes possession of the property and the title to same. In a simple foreclosure, the property is put up for auction, usually by the county sheriff or a comparable officer of the court. If no buyer steps forward for the property the lender then receives the title.

There are individual investors and companies that make it their business to purchase properties at foreclosure auctions for the sole purpose of renovating and selling the property for a profit. The prices gained at auction are generally significantly lower that market value making such business endeavors potentially lucrative.

More terms explained