Foreclosure investment refers to the process of investing capital in the public sale of a mortgaged property following foreclosure of the loan secured by that property.
In real estate, foreclosure is the termination of the equity of redemption of a mortgagor or the grantee in the property covered by the mortgage. Depending on the type of foreclosure proceeding, the sale may be administered by the courts (judicial foreclosure) or by an appointed trustee (statutory foreclosure). Proceeds from the sale are used to satisfy the claims of the mortgagee primarily, with any excess going to the mortgagor. Anyone may bid on properties sold at a foreclosure sale. As a practical matter, however, most properties are acquired by the lender, often for the amount owed on the foreclosed loan.
When interest rates rise, home owners with variable interest rates often become over-extended, providing opportunities for foreclosure investment professionals to obtain investment properties at depressed prices.[1] The most common reason for foreclosure is dissolution of a marriage, followed by a failed business venture.[2] Foreclosure investing can provide favorable returns; in February 2011, foreclosed homes accounted for 39% of home sales in the United States, most to investors.[3]
^A variable interest rate is an amount of compensation to a lender that is allowed to vary over the maturity of a loan. The amount of variation is generally governed by an appropriate index.
^Theodore J. Dallow, How to Buy Foreclosed Real Estate, Adams Media Corporation. 2000.
^"Foreclosed homes account for 39 percent of Feb. 2011 real estate sales". Investing Foreclosures. 31 March 2011. Retrieved 6 February 2012.
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