Before you get involved in foreclosure investing you need to get a firm grasp of the fundamentals. These fundamentals consist of a basic understanding of what is a foreclosure and what the terminology surrounding the foreclosure process means.
First, what is a foreclosure? A foreclosure is what happens when a borrower fails to live up to the terms of their mortgage and it is the action that is taken by the lender against the borrower. This action is taken only when the borrower is in default or has failed to meet the terms of the loan for a certain period of time. By initiating this process the lender can recover the property and sell it to recover the cost of the loan that was defaulted upon.
A mortgage is a contract which enables a borrower to buy a house, while using it as collateral for a loan. The lender puts a lien on the property when lending money to ensure that they can get the property if they are not repaid by the borrower. Default occurs when the borrower does not live up to their end of the contract, most of the time defaults occur because the borrower fails to repay the lender.
There are two types of foreclosures: mortgage foreclosures and trust deed foreclosures. Mortgage foreclosures occur in states where mortgage contracts are used. The mortgage contract gives the lender the right to foreclose if the terms are not met. By signing a mortgage contract the borrower allows the lender to place a lien on the property which ensures that the lender can recover the property if the borrower doesn’t repay the loan.
While a trust deed foreclosure occurs in states where trust deeds are used instead of mortgage contracts. Essentially the deed of the property is held in trust by a third party. If the borrower defaults the third party assigns the deed to the lender.
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