Foreclosure is a complex process but understanding its impact on real estate can make you a more astute buyer.
I frequently have people asking me to inform of properties that have been foreclosed upon. Many people believe that the unfortunate circumstances that lead to the foreclosure in first place will result in real estate savings. This is quite commonly a misconception, although not always the case.
Foreclosure is the process that allows a lender to recover the amount owed on the defaulted loan. They do this by selling taking ownership (repossession) of the property therefore securing the loan. This process begins when the borrower fails to make loan payments or defaults on one or all the conditions of the mortgage. The lender must file a public default notice, called a Notice of Default.
The Foreclosure process can end in one of four ways:
- The borrowing reinstates the loan. The lender, allowing a grace period so the borrower can repay the default amount, accomplishes this.
- The borrower sells the property to a third party during the pre-foreclosure period. This allows the borrower to repay the loan amount in full and saves the credit impairment of having the home foreclosed upon.
- A third party buys the property at public auction, at the end of the pre-foreclosure period.
- The lender takes ownership of the property. This is often with the intent that the lender will resell the property to a third party.
The foreclosure timeline is a simple process as well:
- Default takes place
- A lien is placed against the property in the first 30 days after default.
- After 30 days a Notice of Default is delivered to the borrower.
- After 90 days a Notice of Sale is provided to the borrowed allowing them up to 25 days to sell the property.
- Finally if the property remains unsold the lender takes possession of the property.
What potential buyers fail to realize about this process is that the lender wants their money back. Banks are not in the process of loosing money. As a good example look at the profit and lose statements they produce annually. They want the money they lent back and as much of the revenue they lost as a result of the foreclosure process as possible. In this regard lenders are very patient and astute sellers, they often will while away there time waiting for a profitable offer. At the very least they want to show as little loss a humanly possible.
