What is a Foreclosure?
So what is a foreclosure?
According to Wikipedia: “Foreclosure is the legal process by which a mortgagee, or other lien holder, usually a lender, obtains a termination of a mortgagor's equitable right of redemption, either by court order or by operation of law (after following a specific statutory procedure).[clarification needed] Usually a lender obtains a security interest from a borrower who mortgages or pledges an asset like a house to secure the loan. If the borrower defaults and the lender tries to repossess the property, courts of equity can grant the borrower the equitable right of redemption if the borrower repays the debt. While this equitable right exists, it is a cloud on title and the lender cannot be sure that (s)he can successfully repossess the property. Therefore, through the process of foreclosure, the lender seeks to foreclose the equitable right of redemption and take both legal and equitable title to the property in fee simple. Other lien holders can also foreclose the owner's right of redemption for other debts, such as for overdue taxes, unpaid contractors' bills or overdue homeowners' association dues or assessments. The foreclosure process as applied to residential mortgage loans is a bank or other secured creditor selling or repossessing a parcel of real property (immovable property) after the owner has failed to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said that "the lender has foreclosed its mortgage or lien."
Though it is true that a foreclosed property can offer a buyer an amazing opportunity, be sure to keep in mind that it may also come with a lot of work and more than what you bargained for. When you purchase a home from a private seller, they are required to fill out property disclosures. This gives the buyer all of the general information and history about the house, the mechanicals and the structure to the sellers best knowledge. If the seller ever had an history of infestation, any shared common areas, any pending litigation, foundation issues, etc., they would all be listed in the disclosures. With a foreclosure, the bank is not required to fill out a property disclosure as they have no knowledge as to the condition of the property and they have never lived in the property. This is why it is so important to have proper inspections done. One last note, if the utilities are NOT on and you are obtaining financing, the lender will require that they be turned on at the time of appraisal. This will become the responsibility of the buyer. Permission will need to be given from the bank and the buyer will need turn all utilities on in their name and have them turned off prior to closing (in most cases).