What is foreclosure

What Is foreclosure?

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, called a Notice of Default or
Lis Pendens. The foreclosure process can end one of four ways:

The borrower/owner reinstates the loan by paying off the default amount
to during a grace period determined by state law. This grace period is
also known as pre-foreclosure.
The borrower/owner sells the property to a third party during the pre-
foreclosure period. 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 the pre-
foreclosure period.
The lender takes ownership of the property, usually with the intent to re-
sell it on the open market. The lender can take ownership either 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 or REO properties (Real Estate Owned by the lender).
This process allows for three opportunities for finding bargains on
foreclosure homes.

Pre-Foreclosure (NOD, LIS):
Buying a property in pre-foreclosure involves approaching the
borrower/owner and offering to buy the property outright. 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.

More about auctions

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 then typically clear the title and perform needed
maintenance and repair; however, the potential bargain for these REO
homes is typically less than a pre-foreclosure or auction property. Bank
foreclosures can become government foreclosures if the loan is backed
by a government agency such as the Department of Housing and Urban
Development (HUD) or the Department of Veterans Affairs (VA). In that
case the government agency would be responsible for selling the
property.

More about REO’s

Before you buy
You'll need to make sure you're armed with the foreclosures data you'll
need to find and buy foreclosed homes. You can start by searching free
on Investment Realty Service foreclosure listings database, which
includes pre-foreclosure and REO's in our foreclosures lists.