When people use the term "foreclosure", they are generally referring to the process that a lender takes to collect the remaining debt owed by a homeowner who can no longer keep up with payments on their home mortgage loan. In the event that a homeowner defaults on payment of their loan, the lender will be forced to begin proceedings to sell the property in question to the public as a means of collecting the remaining amount owed in debt on the loan.
While there may be different types of foreclosure sales, this is the general path they follow. Foreclosures officially begin after a homeowner defaults and the lender files a Notice of Default with local county officials or file a court complaint known as a Lis Pendens. Lis Pendens are only necessary in states that require all foreclosures to be approved through judicial proceedings. For states that do not require this, the lender may pursue the sale themselves after registering a Notice of Default. For all intents and purposes, this marks the beginning of the foreclosure process.
However, not all foreclosures end with a public property sale to a new owner. There are a number of ways a foreclosure can turn out, and it is often dependent on local laws and customs.
Many states allow defaulted homeowners a fair amount of time in which to raise the money to pay off their debts and thus keep their home. This is known as a grace period, or pre-foreclosure period. Usually it provides that the defaulted homeowner has up until the day of the sale to pay off the amount owed in default. This allows them to keep their mortgage instated and retain ownership of their home.
Another fairly common outcome is that the defaulted homeowner uses the pre-foreclosure period to find an outside buyer for the home. Since they still own the property until the sale occurs, a defaulted homeowner may try to sell off their property, as this allows them to avoid ruining their credit with a foreclosure and can often earn them a little money with which to start over.
If the sale does occur, it can end in one of two ways. If someone meets the minimum bid and wins the property through the auction process, they will be transferred ownership of the property. In other cases, a sale may not occur at all, and the lender may directly repossess the property. It is then up to the lender to decide if, when and through what means they sell the home.
For homebuyers and investors, buying foreclosure homes can be very lucrative. There are three main ways to buy foreclosures, each with their own procedures and advantages.
Auction Sales
The most common way of buying foreclosures is through the public auction method. One of the advantages of this method is that it is relatively straightforward: all you have to do is show up on the day of the sale and bid. However, these auctions often happen quickly, and can leave you very little time to fully research properties or prepare yourself. On the other hand, they offer the best potential for discounts of any other kind of foreclosure sale.
Pre-Foreclosure Sales
Another very popular way to buy is through pre-foreclosure. This involves contacting homeowners in default before a sale occurs and working out a deal with them for their home. They are often willing to undersell their properties to avoid foreclosure, and often times you can work out a mutually beneficial arrangement. The one drawback is that haggling over price can sometimes be unpredictable and difficult, and you only have so much time strike a deal before the day of the sale. However, this can be a great way to see a home firsthand before you buy, and to ensure you're getting your money's worth.
Bank-Owned Homes and REOs
The third method of buying foreclosures is to buy bank-owned homes, or Real Estate Owned homes (REOs). Bank foreclosures come under the control of lending banks after homeowner's default. The bank will hang on to the home and sell it through silent bidding until they receive a bid they deem adequate. The biggest drawback of these sales is that they do not offer the potential for huge discounts that auction and pre-foreclosure properties do. However, they are often in very good condition, and provide you with plenty of time to do research. These homes can also be sold by government agencies, which often sponsor bank-funded loans.
Make sure you do research on the type of method you choose to pursue, and that it conforms to your level of experience and comfort. Also, be sure to check out ForeclosureDatabank.com foreclosure listings to find lots more helpful advice on buying foreclosures.
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Last update: 01/5/09 7:12 AM
| Preforeclosures: | 512,655 |
|---|---|
| Foreclosures: | 592,050 |
| Bankruptcies: | 257,785 |
| FSBOs: | 45,114 |
| Tax Liens: | 300,000 |
| Total Listings: | 1,707,604 |