Foreclosure Education

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What is Foreclosure?

Foreclosure is when a lender recovers the amount owed on a loan that has been defaulted by either selling or taking ownership (also known as repossession) of the property, therefore securing the loan. The process of foreclosure begins when a borrower/owner fails to pay loan costs (usually mortgage payments.) Soon after, the lender files a public default notice. There are four ways in which a foreclosure process can end:

1. The borrower/owner may pay the owed amount to re-establish the loan during a grace period. State laws determine the grace period, also known as pre-foreclosure.

2. The borrower/owner may choose to sell the property to a third party during the grace period (pre-foreclosure.) During this transaction, the borrower/owner is able to pay off the loan and avoids having a foreclosure on their credit history.

3. A third party may opt to buy the property at a public auction during the end of pre-foreclosure.

4. The lender may decide to take ownership of the property, usually with the intention to later re-sell. Ownership can be achieved in an agreement with the borrower/owner during pre-foreclosure. Ownership can also be achieved through the transaction of buying the property back at a public auction. These are also known as bank-owned properties.

The foreclosure process represents three bargain-buying opportunities.

Pre-Foreclosure (NOD, LIS):
Buying a property in pre-foreclosure is when the buyer offers to buy property from the borrower/owner. The borrower/owner can choose to walk away in order to avoid any bad mark on their credit history. This gives time to the buyer to research the title and condition of the property and can obtain discounts 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. Buyers often may not have much time to research the title and condition of the property beforehand are required to pay in cash at the auction and. The advantage of a public auction is that they often offer some of the best bargains and avoids interacting directly with the borrower/owner.

Bank-owned (REO):
Lenders often obtain ownership of property either through an agreement with the owner during pre-foreclosure or at a public auction. Lenders usually wish to re-sell the property in order to recover the unpaid loan amount. The lender then makes sure the title is clear for the buyer.

Before you buy make sure you have the necessary resources needed to buy foreclosed properties.