A foreclosure is a legal process in which a mortgage company or lien holder takes possession of a property due to default. If you purchase property and secure financing through a mortgage company, you must sign documents agreeing to repay the home loan over a certain number of years. Although you're the owner of the property, the mortgage company holds the note until you pay off the balance. In the event that you cannot pay your mortgage, the lender is allowed to seize the property and evict you. The mortgage company can then sell the home to another buyer.
Foreclosure is the worst possible situation for homeowners, but a foreclosure can be advantageous for buyers looking for a deal. Learn how to avoid foreclosure and prepare for the worst by building an emergency fund so you won’t miss payments. On GOBankingRates, you can also learn how to buy a foreclosed home.