| What are Foreclosures, and who you need to contact.
The process of
foreclosure begins when a property owner runs into difficulty making their scheduled
monthly payments. Most people are very responsible about making those payments, so
the house payment is usually the last monthly bill people will fall behind on. The
reasons are varied, but job loss, divorce, death in the family or long term illness all
are factors that lead to foreclosure. One month will pass without a payment being
made, then the lender will start initiating phone calls and/or letters to the homeowner
trying to find out the cause for the late payment. If the homeowner doesn't respond
or can't resolve the late payments, most lenders will begin formal foreclosure proceedings
when the third payment is missed.
It's important to note that at this time, the homeowner is in
control of the property, and until the lender initiates formal foreclosure proceedings,
the legal fees associated with foreclosure won't be incurred by the homeowner.
That's important, because if a homeowner wants to sell the property, they can preserve
some of their equity that soon will eaten up by legal fees.
How long is the
foreclosure process?
When the third payment is missed, the lender will usually begin
foreclosure proceedings, which is the non-voluntary sale of the property to recover the
funds lent to the borrower. Each state has it's own foreclosure procedure.
Some, like Texas, have an extremely fast process which gives the borrower 30 days to cure
the default, then an additional 21 days before a sale can be held. Others, like
Illinois and New Jersey, will take roughly 10 months for the foreclosure process to be
completed. It is essential for you to know your state's foreclosure procedures if
you have an interest in foreclosures. There is a foreclosure procedures guide in
our resources section that can give you a quick idea of timeframes and type of foreclosure
process in your state.
Once the lender has begun foreclosure proceedings, the homeowner
will have their state-mandated timeframe to pay the past due amount owed to the lender,
but there will be additional fees added to those amounts because the lender will have
incurred legal fees to start the foreclosure. Lenders are usually limited to the
amounts they can charge for legal fees, but as anyone who has dealt with an attorney can
attest to, legal fees add up quickly. Even though the foreclosure has begun, the
homeowner still has all rights to the property during the process, so they can refinance,
if possible, or get a new "foreclosure bailout" loan, or sell the
property. The problem with waiting until this time is that the homeowner just lost
some of their equity to the legal fees.
When does the lender
begin foreclosure?
When the third
payment is missed, the lender will usually begin foreclosure proceedings, which is the
non-voluntary sale of the property to recover the funds lent to the borrower. Each
state has it's own foreclosure procedure. Some, like Texas, have an extremely fast
process which gives the borrower 30 days to cure the default, then an additional 21 days
before a sale can be held. Others, like Illinois and New Jersey, will take roughly
10 months for the foreclosure process to be completed. It is essential for
you to know your state's foreclosure procedures if you have an interest in foreclosures.
There is a foreclosure procedures
guide in our resources section that can give you a quick idea of timeframes and type
of foreclosure process in your state.
Once
the lender has begun foreclosure proceedings, the homeowner will have their state-mandated
timeframe to pay the past due amount owed to the lender, but there will be additional fees
added to those amounts because the lender will have incurred legal fees to start the
foreclosure. Lenders are usually limited to the amounts they can charge for legal
fees, but as anyone who has dealt with an attorney can attest to, legal fees add up
quickly. Even though the foreclosure has begun, the homeowner still has all rights
to the property during the process, so they can refinance, if possible, or get a new
"foreclosure bailout" loan, or sell the property. The problem with waiting
until this time is that the homeowner just lost some of their equity to the legal fees.
Buying at the
foreclosure auction.
When the state-mandated
re-instatement time period has passed, the lender will schedule and hold a public auction
for the property. Terms of the auction are controlled by the state, and sometimes
the county where the property is located. Some areas require cash, or
cashier's checks at the time of the auction, others allow a deposit with the
balance due from a few hours after the sale, up to 30 days after the sale. Again,
it's important to know your state's requirements for dealing with foreclosures. The
auction will be held at a public place which can range from in front of the property being
sold, to a local civic center, or at the proverbial "courthouse steps".
Anyone can attend the auction, bidding on the properties being sold is limited to those
who have "qualified", or shown the auctioneer they have the funds to meet the
local requirements. Properties are usually sold "as-is", with no
guarantees or warranties about the condition of the property, who is living in the
property, or even whether the property title is good. This is a high-risk
area of investing that probably shouldn't be entered by new investors.
After
the auction, the property will be owned by either a third party, who would be the
successful high bidder, or the lender, who normally will take a property back for the
amount owed on the loan, plus legal fees and the costs of foreclosure. Third party
bidders buy either for their own personal use, to keep as a rental property, or more
commonly, to fix up and re-sell the property at it's new fixed-up value. When the
lender takes the property back, it may transfer ownership to an insurer on the property,
or it may process the property, complete necessary repairs and list the property for sale
with a local Realtor. Lender owned properties are often referred to as REO,
which stands for Real Estate Owned.
What's the
difference between
pre-foreclosures and foreclosures?
While the term
"foreclosures" could apply to property anywhere in the foreclosure process,
commonly you'll find people referring to properties before the auction as
"pre-foreclosures", properties going to auction as "auction" or
"sale" properties, and properties owned by a lender or insurer as
"foreclosures".
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