Foreclosures are properties that have been repossessed, usually because the owner has gotten into some sort of financial trouble and is unable to pay their mortgage. When this happens, the lender has a number of options to start a process called foreclosure. While laws surrounding real estate repossession vary by state, in most states, lenders can start proceedings after three months of non-payment.

The foreclosure process also varies depending on the lender and on the type of loan that the borrower has defaulted on. If a loan has been insured by the FHA or VA, for example, the lender can apply to these organizations in order to get the money owed. The property is handed over to the HUD or VA, and the lender gets his money. The HUD or VA, in turn, make the property in question available for sale in order to earn back some of the money they had to pay to the lender.

In cases where the loan is not insured by the government, the lender repossesses the property themselves. The property is often sold at auction, where the lender may bid on it. If the lender re-buys the foreclosed property at the public auction, he or she can then resell it at any price. Properties that have been repossessed and are being resold this way through the lender are known as real-estate-owned or REO properties.

All foreclosures are considered distressed properties, since they are homes or commercial real estate that is in trouble. Sometimes, foreclosures are also fixer uppers, requiring some repairs. Smart investors love these properties, though. That's because repossessed real estate can be purchased inexpensively ? in some cases, 5% or 60% off the market value. Thanks to the fact that sellers are often highly motivated to sell, foreclosures can also often be bought with very flexible (and amazingly low-risk) financing options.

Foreclosed properties offer great benefits to the savvy investor, including instant equity, low-cost financing, and the possibility for great profits. However, this is not an automatic get-rich-quick plan, either. Repossessed properties do come with risks, and the successful investor has to be able to find these properties and choose the right real estate in order to make cash.

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