Foreclosure: Step by Step
Foreclosure is a legal step by step process, and through it a lender – usually a bank or mortgage company – can take possession of a property that was pledged as security on a loan. Because these lenders are not really in the business of owning and managing real estate, the properties that they take ownership of through foreclosure are usually sold as fast as possible by a real estate agent or property management company.
When most of us sell a house, we try to get as much money for it as possible, even if that means fixing it up, planting flowers in the yard, and waiting a few months until the highest offer that comes our way. Our primary motivation is to make as much of a profit as possible. Banks who take back property they don’t really want to manage have a slightly different perspective. Their goal is also to make money, of course. But they are mainly interested to get back the money they loaned, as soon as possible. The faster they recoup their losses, the sooner they can turn around and lend that money to somebody else.
For that reason, they try to sell off the foreclosure properties that are in their inventories promptly, for enough money to cover the amount they loaned out. If they can just break even and not lose money, they consider the foreclosure a grand success. What that means for the average consumer – or for the real estate investor – is that foreclosure sales are a chance to buy property at a discounted price.
In order to get the best deals in this highly lucrative market, it is important to act quickly and make smart decisions on a short notice. Sometimes the judgment you have to make is to buy as quickly as possible, before another investor gains possession of the property. Just as often, a wise buyer will need to make a quick decision to avoid buying, in order to avoid risk or hidden costs. Just because a property is in foreclosure does not mean that it is a bargain, because sometimes if something looks too good to be true, it is. It is essential that buyers understand several fundamental principles related to the foreclosure process, in order to take advantage of real estate bargains, while avoiding the common pitfalls.
Once you learn the rules of foreclosure investing you can create your own winning strategies for picking up inexpensive foreclosure investment properties like those listed on ForeclosedHomes.com. In order to get you started ForeclosedHomes.com has created a timeline, to show you each step in the foreclosure process, along with the schedule of the legal actions that ultimately lead to forfeiture of a property.
Day One: Missed Payment
If a borrower misses a loan payment, the foreclosure process starts. During the next 60-90 days, they have a chance to make back payments, pay penalties, and avoid foreclosure.
Many homeowners faced with foreclosure will sell their houses during this grace period, because even if they lose the house they won’t lose their credit in the process. They can go to another home and get a fresh start. This is a good time for you to step in and buy the property, while also helping out the distressed homeowner.
Day 16-30
Late charges and penalties begin to add up, and an attorney or a trustee is given the responsibility of contacting the homeowner to find out what is going on and try to get the payments up to date, or “reinstated”. If those attempts fail, the property will go into final, more drastic foreclosure proceedings.
The best way to check the status of the property during this phase is to contact the person assigned to the foreclosure. This is also a good time to visit the property, check out the location, and perhaps talk to the owner or mail them a letter to make an offer to purchase. Or you can hire a Realtor to investigate for you.
Day 45-60
The homeowner is officially notified that foreclosure is pending and they are given one last chance to “cure” the loan by paying all past due amounts. Foreclosure laws vary from state to state, but in most locales the homeowner is within one month of foreclosure, and must prepare to remedy the situation or be forced out of the house.
As a buyer, you or your agent may want to contact the lender at this stage, and offer to buy the house or take over the loan payments, if the lender is willing to offer you a satisfactory price. Because foreclosure is a long and drawn out process that costs the bank time and money, many lenders would rather sell you the property than to deal with a continued legal process. They may offer you an attractive price – and even offer to lend you the money at competitive rates – in exchange for you taking the property off of their hands.
Day 90-105
The trustee in charge of processing the foreclosure will now push forward with plans to auction off the property. Normally this involves notifying the general public by placing ads in papers or posting notices on the courthouse bulletin board. An auctioneer will be hired to conduct the sale, and a date will be set for the foreclosure auction.
If you are looking for foreclosures, this is your window of opportunity. Many investors keep a close eye on announcements, so that they can track properties and show up for the auction, ready to bid and buy.
Day 150-415
The property is sold at an auction to the highest bidder. If buyers don’t offer enough to cover the losses of the lender, the lender may take back their own property, in order to give them a second chance to sell it for a better price. If this happens, the Mortgage Company or bank will contact a real estate agency or property management company and hire them to market the property.
You can go to the auction and buy the property, if you are prepared to do so.
REO Phase
The property now becomes what is known as an “REO” or “Real Estate Owned”. The bank now owns the house that they originally loaned money to someone to buy. As explained in the beginning of this article, mortgage lenders are not in the business of owning real estate, so they will try to dispose of their REO homes as quickly as possible.
Check sites like ForeclosedHomes.com frequently for fresh data on new listings of foreclosures and REO properties. You may find your dream home, at a dream price.