A foreclosure occurs when a homeowner is unable to make principal and/or interest payments on a mortgage which is secured by the property being purchased. Details of the foreclosure process vary from state to state, but basically this is how the foreclosure process runs.
The process itself (which does vary slightly from state to state) is relatively straightforward, and there are several points along the way at which potential investors could obtain the property at a good price. Generally speaking, before that can happen a homeowner must be delinquent on his or her mortgage payments for anywhere from three to six months. At that point the mortgage holder orders a Notice of Default (a NOD) to be filed at the county recorder’s office.
A Notice of Default is Filed
Once the NOD is filed, the homeowner has – generally speaking – approximately three months to bring the mortgage current. This entails paying all back principal as well as missed interest payments and any penalties or late fees which the lender has posted.
At this point a motivated homeowner may be amenable to a cash-out offer which would allow the homeowner to walk away with no further harm to his or her credit rating and possibly even a little cash. The main problem, however, is that many homeowners are in a state of deep denial at this point; they irrationally believe that something, some unforeseen almost magical something will happen to get them out of their situation and save their home.
It is up to the investor to use tact, compassion and logic to make the homeowner understand that a cash-out offer to take the property off his/her hands before more damage is done to the borrower’s credit rating is the magic bullet that the homeowner is looking for. That is not always easy, however.
Next – The Notice of Sale
The next step in the process is the posting of a Notice of Sale. The Notice of Sale is filed with the county recorder’s office and the notice is posted on the property itself. An auction sale-date is established in the Notice of Sale. In most municipalities the homeowner has until five days prior to the auction date to bring the mortgage up to date.
The Notice of Sale is often the point at which the homeowner is finally able to come to grips with the fact that the home is going to be lost and that the homeowner’s credit rating will be negatively affected unless something is done quickly to remedy the situation. This is another point at which an astute investor may wish to make the homeowner an offer for the property; the offer will generally have to include all back mortgage payments as well as all missed interest payments and any penalties or fees which the lender has tacked onto the property. Depending on the situation, this money may be less than the investor can expect to pay for the property at an open auction, and is often the last opportunity the homeowner will have to walk away from the property relatively cleanly before the actual auction takes place.
Finally – The Auction Itself
In most localities auctions for foreclosed properties take place on the steps of the courthouse in the county where the home is located. Auctions are advertised for three weeks in most states and are open to the general public. In order to bid on a foreclosed home, bidders must meet certain requirements which vary from state to state, but in most cases the winner must provide the full bid price – in cash – to the trustee within 24 hours.
Once the bid is paid in cash, the successful bidder is provided with a clear title to the property – with the notable exception that the winning bidder is responsible for any back property taxes.