Foreclosure Investment

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 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. The most common reason for foreclosure is dissolution of a marriage. The next most common reason is a failed business venture. Foreclosure investing can provide favorable returns; in fact, foreclosed homes accounted for 39% of home sales in the United States in February 2011, most to investors.