If you are in the middle of a foreclosure, it is good to know the foreclosure process. If you’re a real estate investor looking for great deals on real estate investing, you’ll also want to understand the foreclosure process.
The foreclosure process is complex, but it’s really not that difficult. Although it varies from state to state, there is a fairly standard process used by counties to foreclose on a home.
A home will go into foreclosure when the property owner fails to pay principal, interest, and/or property taxes for a period of time, usually around 6 months. Many homeowners will skip their property tax payments while keeping the principal and interest payments on their home.
Most foreclosure proceedings tend to result in the seizure and sale of the property.
Why do foreclosures happen?
The downward spiral of foreclosures is hard to stop once it starts. You fall behind on payments, making it difficult to catch up. What happened recently was that many borrowers had loans at subprime rates. That is, mortgage rates were below the prime rate. After a period of 3 to 5 years, the interest rate would go up to “Prime-plus”. If, for example, the mortgage rate was set at 2.5% for 3 years, it would go up to around 7-8% after the initial period, in many cases doubling the payment.
Many people couldn’t afford the new payment, so they began to spiral into foreclosures. The foreclosure process begins the moment a mortgage loan payment is 16 days late. Once this pinnacle has been reached, the full-blown foreclosure proceeding is generally not far behind. At this point, the mortgage servicer may attempt to contact the delinquent homeowner to create some type of viable payment schedule.
The homeowner still doesn’t make the payments. Foreclosure proceedings can begin after the homeowner has missed three to six months of loan payments. Thereafter, the mortgage lender can order a trustee to make and file a Notice of Default.
The Notice of Default is known as a NOD in the County Recorder’s Office. The NOD is intended to warn borrowers that they are in danger of facing foreclosure actions. This filing also starts a reset period that will typically last around five days before the property is officially listed or put up for auction.
When the mortgage stops paying
Once a homeowner begins to descend this spiral, they will generally not be in a position to correct the mortgage default within 90 days. If he is investing in real estate, he may want to contact the homeowner before this happens. This is called a “pre-foreclosure” investment.
At this point, the sale date of the home is established. Owners will receive a Notice of Sale. The Notice of Sale will be posted on the home or property and a copy will be filed with the County Recorder’s Office. Most counties have a section of the local newspaper where they lost these sales. If not, you can easily get this information from your county office or on the website.
Most of these foreclosure proceeding trustee sales take place in the county courthouse. The location and time of the sale are usually specified at this time. Most of these foreclosed properties are awarded to the highest bidder at a local auction. Most winning bidders must pay in cash, with an initial deposit upfront and the remainder within 24 hours of the initial sale.
When the auction is held, the opening bid is set by a representative of the foreclosure loan company. He’ll see that the opening offer is equal to the amount owed to the lending company: the outstanding balance of the mortgage, including accrued interest and any additional fees associated with trustee sales.
Foreclosure is a harrowing process. If you are a real estate investor, you should think of this as a business transaction. It’s easy to get emotionally invested, yet you’re often in a position to help someone going through foreclosure by helping them walk away with a little cash and no black marks on their credit.
Do yourself a favor if you are in foreclosure. Get some help. This is not a time to gloat or try to keep it under wraps. Help is available from many sources, so find someone who can help you rescue him.
