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Foreclosure refers to the legal process by which a lender attempts to recover the balance of a loan from a borrower who has stopped making payments. This process is conducted by forcing the sale of the asset used as the collateral for the loan, which is typically a property.

When a borrower purchases a property, they usually do so with a mortgage loan. If the borrower fails to make the required loan payments, the lender can initiate the foreclosure process. Once the process is started, the lender can take ownership of the property and sell it to recoup their losses. If the foreclosure auction does not result in a sale, the property becomes a real estate owned (REO) property, which the lender can sell through a real estate agent or directly to a buyer.

For real estate investors, foreclosures can present potential investment opportunities. Foreclosed properties are often sold below market value because lenders are interested in recovering their losses quickly. This means that investors can sometimes purchase properties at a discount, fix them up, and sell or rent them for a profit. However, investing in foreclosures also comes with risks, including potential problems with the property condition, challenges in evicting current occupants, or complexities in the foreclosure process itself.