Whether you're looking to buy a new home as your primary living residence, vacation home or investment property, you may consider buying a foreclosed home. Because they've been repossessed by the lender, they often cost less than their non-foreclosed counterparts. However, there are a few things you should know about foreclosures before signing a sales contract, such as what is a foreclosure and should you purchase a foreclosure property.

What is a Foreclosure?

A foreclosure is a legal repossession of home that occurs when the borrower (homeowner) stops making payments or otherwise fails to meet his or her obligations set forth in the contract. The lender has a legal right to repossess and sell or rent the home in an attempt to recover the mortgage balance.

According to StatisticsBrain, there are nearly 4 million home foreclosures during the peak of 2011 market crash. However, these numbers have since declined, with only 1.1 million foreclosures occurring in 2015.

Different Types of Foreclosures

Of course, there are several different types of foreclosures, each of which has its own characteristics. The most common types of foreclosures include the following:

• Judicial foreclosure: also known as foreclosure by judicial sale, this is the most common type of home foreclosure. It involves the sale of the home under the local court's supervision. The funds generated from the home's sale go towards the mortgage, with any remaining funds going towards lien holders, followed by the borrower.
• Nonjudicial foreclosure: if a power of sale clause is included in the contract, a nonjudicial foreclosure may be used. Unlike judicial foreclosure, the court is not involved in supervising the sale. However, this type of foreclosure is only available in certain states.
• Strict foreclosure: also available in select states, a strict foreclosure is a type of foreclosure in which the court orders the homeowner to pay the mortgage within a specified time.

Should I Buy a Foreclosed Home?

Now for the million-dollar question: should I buy a foreclosed home? Well, that's a pretty broad question with no easy answer. Buying the right foreclosed home can yield significant cash savings, but buying the wrong foreclosed home could burn a hole in your savings account.

You have to remember that tenants who are expecting to be evicted often neglect basic maintenance to their home. This often results in poorly kept homes being sold as foreclosures If you have the home professionally inspected and use your best judgement, however, you can avoid these bad apples.

This article was brought to you by Premier Island Properties - A full service real estate firm serving Hilton Head Island and Bluffton, South Carolina. For more real estate news, information, and interesting facts about the Lowcountry, please visit our website.