What is Foreclosure?
A foreclosure occurs when a homeowner fails to make the required payments on their mortgage. This typically leads to the property being seized and sold. There is a lapse of time where the homeowner can “redeem” or “reinstate” the mortgage, but oftentimes – because of massive late fees – the borrower simply cannot catch up on the payments. These late fees are currently the subject of massive legislation, but as of today – you can’t bank on it.
Stages of the Foreclosure Process
The foreclosure process is very simple conceptually. You don’t pay for the house so the bank takes the house back from you. however, there are discrete stages (state specific laws apply here) to the foreclosure process. Up until the very end, the borrower has an opportunity to bring the loan current and maintain possession of their home.
This usually refers to an arrangement between the homeowner, the bank and a buyer. These are also sometimes called, “Short Sales” but technically – depending on the state – there can be a difference. This arrangement allows a defaulting borrower to sell the mortgaged property to satisfy the loan and avoid foreclosure. This still can have a negative impact on the borrower’s credit file.
Usually after about ninety days of nonpayment, the lender will file a Notice of Default (NOD) at the County Recorder’s Office. This puts the world on notice – foreclosure investors – as this is part of the public record. The borrower now knows he/she is facing foreclosure and starts a reinstatement period that typically runs until five days before the public auction.
Generally, the mortgage must be brought current within ninety days of file the NOD. If not, aforeclosure sale date is set and the homeowner receives a Notice of Sale. This notice will also be posted on the property – usually on the front door. The Notice of Sale is recorded at the County Recorder’s Office in the appropriate county (county where the property is located). In many cases, the Notice of Sale is also published in local newspapers.
The time and location of this sale are specified in the Notice of Sale. The actual sale usually takes place at the county courthouse. When the property is auctioned, it will go to the highest bidder. The bidder is usually required to pay a large cash deposit with the remainder due within one day. Once the transaction is complete, the buyer will get a trustee’s deed to the property.
Foreclosure Auction Process
The opening bid on a property is generally set by the foreclosing lender. The lender can determine any price they want, but customarily they set the price equal to the outstanding loan balance. They will also add in fees, accrued interest and perhaps attorneys fees if applicable.
When no one bids on the property, the lender will purchase the property themselves. This results in an REO – Real Estate Owned property. This oftentimes happens when the property for sale is worth less than the total amount owed to the lender.
ILAC [International Legal Aid Center] [Source: The MortGage Mess.com]