Foreclosure

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Foreclosure is the lender initiated process of taking ownership of property used as collateral for a loan that is in default. For example, if a borrower buys a house using that house as collateral. A bank will foreclose and take possession of the house if the borrower fails to pay back the loan. The bank then attempts to sell the house in order to recover their money.

In some cases, the home owner may make a strategic default. This occurs when the home becomes worth less than what the current owner still owes on the mortgage. This is known as having a mortgage that is underwater. The home owner may decide that even though they can continue to make the payments, they can simply let the house go back to the bank and come out ahead financially. In some cases, they may simply mail the bank the keys to notifying them that they intend to default on their promise to pay for the home.

There have always been foreclosures and it is an expected part of the housing market. However, the increasing number of strategic defaults is something relatively new and reflects a different attitude in the national culture.

For potential buyers, foreclosures can offer good deals. Most banks don't want to be in the Real Estate business and often are willing to sell the property at a discount in order to get it off their books.

In the current economic climate, many lenders are delaying foreclosures in order to keep houses from going vacant. A vacant house, is likely to become a target for vandals and if the bank doesn't feel they can sell the home quickly, they may decide they are better off letting the current occupants stay in it rather than going through the foreclosure process immediately.