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Foreclosure – What Is It?

Foreclosure occurs when a real estate owner stops making payments on his/her real estate debt and the lender takes possession of the real estate.  Most residential real estate mortgages contain a clause allowing the lender to take possession upon non-payment by the borrower.  Each state has different laws relating to foreclosure, so the exact process of the lender obtaining the interest in the property varies.

There are a number of steps the lender must go through before selling the real estate to recapture the money owed on the real estate.  During the process, the home owner may bring the loan current and end the foreclosure process.

At some point, usually after the borrower has misses 3-6 payments, the lender records a notice of default, commonly referred to as an NOD.  This is the formal notice to the borrower that the loan is in default the foreclosure process has started.

If the default is not corrected within a specified time, the foreclosure sale date is set.  A notice of sale goes out to the homeowner, is posted on the property, and published in newspapers.  The notice of sale gives the date and place of the auction where the property will be offered for sale.  This usually takes place on the county court house steps.

The lender will set a minimum bid to open the auction bidding.  The high bidder at the auction then purchases the real estate and is given a trustee deed to the property.  If no one bids on the property, it becomes bank owned, referred to as REO (Real Estate Owned).

Real Estate purchased at auction has all junior liens erased, other than property taxes.  This typically means the real estate comes with a clean title.

Foreclosure Pass

The banks and courts are overloaded with abandoned properties, foreclosed mortgages, seized houses, forfeited apartment buildings, and raw land that can be obtained very cheaply by bidders who are ready to take over the Forfeited Properties either for their own use or for resale to the general public.