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Many of us have heard the term foreclosure in relation to
other individuals and understand that it is not a pleasant
term, but do not have a firm grasp on what it actually
means. Before we go any further in discussing the profit
potential available through foreclosures it is critical
that we define the term foreclosure.
Almost 100% of the population, minus the small segment
that has ready cash lying around, must finance a
significant portion of their home purchases. Most people
cannot afford to simply pay the actual cost of their new
home up front. The actual percentage varies from one
individual to the next; but it is common for prospective
homeowners to finance anywhere between 80% -100% of the
home purchase. The amount of that loan is paid back over a
period of time through a tool known as a mortgage. We're
probably all familiar with that term on a monthly basis
ourselves.
The part that really interests us is what happens next. In
some situations, the homeowner at some point in time will
not be able to meet the monthly mortgage note. This, of
course, could occur for a number of reasons. Bad financial
decisions. Loss of employment. Medical conditions. Whatever
the reason, after a certain number of late or missed
payments the lender will have no choice but to call the
loan. Continuing with this pattern of behavior would be a
bad financial decision for the bank and their stakeholders.
In almost all cases, the lender will provide an
opportunity for the homeowner to bring their payments up to
date in an effort to avoid foreclosure. In most cases, the
homeowners are not able to do this because they have become
so mired down in financial problems. At this point the bank
begins to take action to actually take back the house. This
is known as foreclosure and it is possible because the
property was listed as collateral when the loan was
originated. While the word foreclosure leaves a bad taste
in the mouths of some people, it is actually no more and no
less than a business term. The bank agreed to lend the
homeowner money for the purchase and in exchange the
homeowner agreed to pay interest on the money with the
stipulation that in the event they could no longer meet the
notes on the loan; the property would be returned to the
bank.
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