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What is Foreclosure?
Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice. The foreclosure process can end one of four ways:
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- The borrower/owner pays off the default amount to reinstate the loan
during a grace period determined by state laws. This grace period is
also known as pre-foreclosure.
- The borrower/owner sells the property to a third party during pre-foreclosure.
The sale allows the borrower/owner to pay off the loan and avoid having
a foreclosure on his or her credit history.
- A third party buys the property at a public auction at the end of
pre-foreclosure.
- The lender takes ownership of the property, usually with the intent
to re-sell. The lender can take ownership through an agreement with
the borrower/owner during pre-foreclosure or by buying back the property
at the public auction. These are also known as bank-owned properties.
The foreclosure process represents three
bargain-buying opportunities.
Pre-Foreclosure (NOD, LIS):
Buying a property in pre-foreclosure involves approaching the
borrower/owner and offering to buy the property. The borrower/owner can
walk away with something to show for any equity in the property and avoid
a bad mark on his or her credit history. The buyer has time to research
the title and condition of the property and can realize discounts of
20-40 percent below market value. More
about pre-foreclosures
Auction (NTS, NFS):
If the loan is not reinstated by the end of the pre-foreclosure period,
potential buyers can bid on the property at a public auction. Buyers
often are required to pay in cash at the auction and may not have much
time to research the title and condition of the property beforehand;
however, a public auction often offers some of the best bargains and
avoids the unpredictability of dealing directly with the borrower/owner.
Bank-owned (REO):
If the lender takes ownership of the property, either through an agreement
with the owner during pre-foreclosure or at the public auction, the
lender will usually want to re-sell the property to recover the unpaid
loan amount. The lender will probably make sure the title is clear
for any buyer, but the potential bargain is typically less than a pre-foreclosure
or auction property.
Before you buy
You'll need to make sure you're armed with the resources you'll need
to buy foreclosed properties.
Source: For more foreclosure information, go to realtytrac.com
