When individuals or businesses are not able to make full payment whilst buying some property, they may pledge that property to the lender as a security for the loan. In case the debtor (mortgagor) defaults, lender may seek compensation by means of foreclosure. Foreclosure is the forced sale of property in a public auction under court orders. Court orders are not compulsory in statutory foreclosure, where mortgagee is entitled to put the property on auction without having court order.



Foreclosure procedure is simple. As soon as the borrower defaults on payments, lender will have a notice (Notice of Default) issued against borrower to let him know that he/she maybe facing a foreclosure of the property if the loan is not reinstated. Borrower is provided with some time, known as grace period.

Owners can sell the property themselves during this grace period or they can arrange for funds to reimburse the debt. Real estate investors are often in hunt of properties in pre-foreclosure phase, knowing that owner is out of time and options and he/she will be looking to sell the property as soon as possible. Normally they will sell the property at a very reasonable price which is still more than what they will get if the property is sold by lender through auction. Another advantage of selling the property during this grace period is that owner can avoid having a foreclosure in his/her credit history.

If the owner was not able to repay the default amount during the grace period, a public auction will take place. When you are going to bid on some property in foreclosure, you must do some basic research work. After determining the property's market price, carefully decide on what should be your limit to bid. Getting the help of some professional agent can also help if you are going into property auctions for the very first time.

Although foreclosures provide investors with some opportunities to make profit, they are never welcomed by owners or even lenders. As an owner you should try to use any alternative other than foreclosure to save your credit history from getting negative ratings. Always keep in touch with lender if you are going through some financial crisis and let him know that you expect it to be over soon. Normally lenders are also not willing to go through foreclosure; ideally both parties should sit together, evaluate the situation, weigh up different options and make some arrangements to relieve both parties.