Note: The following is a generalized breakdown of the foreclosure process, the foreclosure process varies from State to State.
A foreclosure occurs when a property owner cannot make principal and/or
interest payments on his/her loan, typically leading to the property
being seized and sold.
Stages of Foreclosure
The foreclosure process is not very difficult to understand. There are
several stages during which the homeowner has an opportunity to bring
the loan current and avoid foreclosure.
After about three to six months of missed payments, the lender orders a
trustee to record a Notice of Default (NOD). At the County Recorder’s
Office. This puts the borrower on notice that he or she is facing
foreclosure and starts a reinstatement period that typically runs until
five days before the home is auctioned off.
If the default isn't corrected (the loan must be brought current)
within three months, a foreclosure sale date is established. The
homeowner will receive a Notice of Sale, and this notice will also be
posted on the property. In addition, the Notice of Sale is recorded at
the County Recorder’s Office in the county where the property is
located. Finally, this Notice of Sale is also published in newspapers
local to the county in question over a three-week period.
The foreclosure Trustee Sale typically occurs on the steps of the
county courthouse in which the property is located. The time and
location of this sale are designated in the Notice of Sale. At the
Trustee Sale, the property is auctioned in public to the highest
bidder, who must pay the high bid price in cash, typically with a
deposit up front and the remainder within 24 hours. The winner of the
auction will then receive the trustee’s deed to the property.
At auction, an opening bid on the property is set by the foreclosing
lender. This opening bid is usually equal to the outstanding loan
balance, interest accrued, and any additional fees and attorney fees
associated with the Trustee Sale. If there are no bids higher than the
opening bid, the property will be purchased by the attorney conducting
the sale, for the lender.
If this occurs, and the opening bid is not met, the property is deemed
a REO or Real Estate Owned. This typically occurs because many of the
properties up for sale at foreclosure auctions are worth less than the
total amount owed to the bank or lender.
When you purchase property at a foreclosure sale, all junior liens
other than property taxes are wiped out. Priority of liens is
determined by the date of recording. When you purchase a REO aka. Bank
REO, you will typically receive the property with a clean title.