Patricia M. McCorry, JD, CRB, GRI's Blog
What Is A Foreclosure?
A foreclosure is what happens when a property owner cannot make the required monthly mortgage payments for the property loan. This lapse in payment leads to the property being seized and then sold by the bank to make up for the loan deficit.
During the process of foreclosure, the homeowner does have the opportunity to make the loan current and avoid giving up their property.
When mortgage payments have been missed for 3-6 months, the lender will order what is called a Notice Of Default (NOD). This is the official notice that the homeowner is facing foreclosure. This notice begins the reinstatement period where the homeowner has the opportunity to make his account current. This period lasts up to about 5 days before the home is auctioned off.
If the defaulted loan is not corrected within 3 months, then a foreclosure state is established. At this point, a notice of sale will be given to the homeowner and it will also be posted on the property as an official document. The sale of the home is “advertised” in local news sources, typically over a three-week period.
Where The Sale Occurs
The sale of the foreclosed home usually occurs at the local county courthouse where the property is located. The details of the sale are located on the Notice Of Sale document. The sale is conducted as an auction in public, given to the highest bidder. A cash deposit must be made up front and the remainder of the price must typically be paid within 24 hours. The winner of the auction receives the deed to the property.
With a foreclosure auction, the opening bid is set by the lender. This starting number is usually equal to whatever the outstanding loan balance is including the interest and additional fees including attorney’s fees. If there are no bids higher than the opening bid, the property is purchased by the lender via the lender’s attorney. This makes the property known as “Real Estate Owned.”
Problems With Buying Foreclosures
One thing to be aware of when you’re considering buying a foreclosure is that the amount owed on the property can actually be more than the property itself is worth. Any liens excluding property taxes are typically voided at the time of purchase of a foreclosure, which is a slight bonus to a buyer.
The other issue with buying a foreclosed property is that you need quite a bit of cash up front in order to purchase the property. This is why buying a foreclosure may not be for everyone.
While no one wants to face losing their own property to foreclosure, getting a foreclosure notice isn’t the end of the road for homeowners. You’ll still have a few chances to make things right. If you’re looking to buy a foreclosed property, you really need to understand the ins and outs of what you’re getting yourself into before you make a bid.