Forclosure Education - What is Foreclosure?

Foreclosure is the process of either selling or repossessing (taking ownership) a property. When a lender is able to recover the amount owed on a loan that has been defaulted and at the same time securing the loan is also known as foreclosure. This process is able to proceed when a borrower/owner does not pay the cost of a loan (usually mortgage payments.) The lender is entitled the right to file a public default notice. Below are four possible ways a foreclosure process may finish:

1. The owner/ borrower may opt to pay the amount owed so the loan may be re-established. This is usually done during a timeframe known as the grace period. The terms of a grace period are established through state laws, also known as pre-foreclosure.

2. The owner/ borrower may opt to sell the property to a third party during pre-foreclosure (also known as the grace period.) By doing this, the owner/ borrower is able to pay off the loan that is owed and avoids having a foreclosure strike on their credit history.

3. A third party may choose to purchase the property at a public auction at the end of pre-foreclosure period.

4. The lender may choose to attain ownership of the property, with the intent of re-selling later on. During pre-foreclosure, ownership can be attained through an agreement with the owner/borrower. The property may also be bought at a public auction and attain ownership, also known as bank-owned properties.

The foreclosure process entails three bargain-buying opportunities.

Pre-Foreclosure (NOD, LIS):

Purchasing a property during pre-foreclosure is when a buyer wishes to purchase property from the owner/ borrower. The owner/ borrower has the option of refusing the offer in order to avoid any bad mark from appearing on their credit history. The buyer is then able to research the title and condition of the property. By doing such, it also gives the buyer the opportunity to obtain a discount on the property, usually between 20-40 percent below market value.

Auction (NTS, NFS):

When a loan is not restored by the end of the pre-foreclosure period, buyers can bid on the property at a public auction. Unfortunately, buyers usually are not able to research the title and condition of the property before the actual auction. However, buyers are required to pay cash once the auction ends. Such auctions often offer some of the best bargains and investment opportunities. Auctions are extremely convenient and also allow the buyer from any direct interaction with the owner/ borrower.

Bank-owned (REO):

Lenders are able to obtain ownership of a property in the form of an agreement with the owner in two ways, during pre-foreclosure or at a public auction. The purpose of lenders re-selling properties is done in order for any unpaid loan amounts to be recovered. Once this is complete, the lender is able to then proceed in making sure the title is clear for the buyer.

Always have the essential resources needed in order to buy foreclosed properties.