The Home Foreclosure Process – Start to Finish

Investing in home foreclosures is a good way to start your real estate investing venture.  However, it is important to know how foreclosures work and when is the best time to invest during the process.  The process takes more time and is more complicated than people realize.

Before the process begins, the homeowner stops making their mortgage payments due to some financial situation.

After about 15 to 30 days, the lender sends a payment reminder.  If the homeowner still does not respond, the lender continues to send notices and begins numerous phone calls to the homeowner.

If the homeowner still does not respond, the lender turns the account over to their collection and harassment department, who continues to harass the homeowner with more letters and phone calls.

After about three months of missed payments, the lender turns the account over to their outside counsel.  Their attorney sends a letter to the homeowner warning them that foreclosure proceedings are about to begin.  At this point if a satisfactory arrangement between the lender and homeowner can be reached then the foreclosure can be stopped.

However, if no satisfactory negotiation can be reached, then the foreclosure process continues.  The attorney begins by posting a foreclosure notice in the county’s legal newspaper or in the local legal newspaper.  The homeowner can still stop the foreclosure and reinstate the mortgage by catching up on the payments and paying any additional late fees and penalties.  If the homeowner does not reinstate the mortgage, the foreclosure process continues. 

The civil division of the sheriff’s office is assigned the task of handling the sale of the foreclosed property.  The trustee or attorney handling the foreclosure sets the opening bid and typically advertises it in the foreclosure notice.

The opening bid is usually the balance of the mortgage plus penalties, unpaid interest, attorney fees, and other costs that the lender has incurred during the process.

The sheriff or his representative may visit the house prior to the sale to post a foreclosure notice and inspect the property, because sometimes redemption rights change if the homeowners abandon the property.  (Some states have a redemption period, after the sale, during which time the homeowner can buy back the property by paying the full amount of the loan along with taxes, interest, and penalties.  This process can take up to a year.)

At this point the property goes up for auction.  Frequently, the lender reduces the opening bid to make the property more appealing to investors and rid themselves of it.  The property is sold to the highest bidder or is turned over to a trustee to liquidate the property and pay the lender.

An investor purchases the property at auction or from the trustee, or the lender buys the property.  If nobody bids higher than the opening bid, which the foreclosing lender submits, control is handed over to the lender, who can then take possession of the property following any redemption period as explained previously.  If the lender takes possession of the property, the lender transfers the property to its REO (Real Estate Owned) department, which prepares the property for sale.  The previous owners move out or are evicted.

When making any kind of home foreclosure investments, the best time to purchase the property is after it becomes an REO property.  An REO is the simplest way to purchase property.  It is a good investment for the first-time homebuyers and investors.  An REO property allows you to gain access to the property for an inspection.  Lenders have a responsibility to their shareholders and they lose money on non-producing assets.  So, they want a quick sale.  They are able to provide 20% to 30% savings.  All liens and back taxes have been removed.  They are able to negotiate on rehab costs, interest, closing points, and loan amounts.  They may allow a less than normal down payment.  If there are tenants, the lender will evict them.  You don’t have to.  100% risk free.  So, you can see why this would be the best time in the process to make your investment.

Kimberly Ann