What Is a Foreclosure?

Learn about foreclosures in this Howcast finance video with expert Gregory McGraime.

A foreclosure is basically a lenders way of taking back a home from a homeowner in the event that they were unable to keep making their payments or falling behind, and you might ask "why would a bank do that?", but a bank has a lot of risk when they’re loaning money, and the house serves as the collateral. So if a homeowner is unable to make their payments after a certain amount of time, at some point the lender says, you know we want to just get whatever we can out of this, we know were losing money, but we want to cut our losses, and the way we’ll do that is we’ll take back the home from the homeowner and we’ll sell it ourselves at a depressed price but at least the lender is getting something out of the deal. Now foreclosure is really bad for the homeowner. If you are not able to make your payments and you have to go through a foreclosure process, your credit score is really impacted significantly in a harmful way. It will also make it much harder for you to get a mortgage or be approved for a mortgage in the future if you’re buying a house at some point over the next several years. So again foreclosure is the process that the lender simply says you know what we need to recoup our investment because we are losing money with this homeowner not making payment, and you hope it doesn’t go that far the lender hopes they don’t have to foreclose, the homeowner hopes it doesn’t get to a foreclosure but at some point that’s the end result of a homeowner falling behind or not being able to make their payments.