Beginners Guide To Foreclosure Investments - Overview of Foreclosure Process

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3/27/2012

Foreclosures are definitely one of the best investment options for both new and established real estate investors. For practical purposes we will group all of the following into the foreclosure segment:

Pre-foreclosures - These are properties that are in the very first stages of the foreclosure process. This occurs when the owner is just beginning to fall behind on their payments.

Short Sales - These are properties that are being sold for less than the amount owed on the existing mortgage (subject to approval by the lender). This occurs as an alternative to foreclosure when an owner can no longer afford the monthly payments for their mortgage.

Bank Owned Properties - These are true foreclosures. They become bank owned properties after the mortgage holder (bank) has completed the foreclosure process. If no one is interested in purchasing the property while being foreclosed on the bank will be forced to become the legal owner of the property until it sells. When this happens the property is “bank-owned”.

Auction Properties - Auctions occur for several purposes when real estate is being sold. In the foreclosure process auctions occur just after the mortgage holder has obtained a foreclosure judgement. In addition banks and mortgage companies will occasionally use auctions to sell their bank-owned properties.

Overview of Foreclosure Process
1. Property Owner becomes delinquent on monthly mortgage payments to bank or mortgage company.

2. Bank/Mortgage Company issues Notice of Default which is legal notice to property owner informing them of potential foreclosure and all past due mortgage payments.

3. After several months the bank will initiate foreclosure proceedings against the property owner.

4. Foreclosure proceedings occur in a local civil court in the county where the property is located.

5. After a long court process (can take years in some cases) the foreclosure judgement will usually be granted by the courts. This can be delayed if the property owner declares bankruptcy.

6. When the foreclosure judgement is obtained by the mortgage holder they generally will put the property up for sale with an auction. This sometimes occurs on the courthouse steps immediately after the foreclosure judgement is obtained.

7. If the property does not sell at the auction immediately following the foreclosure judgement the bank will take legal title. The bank (or mortgage holder) will then be responsible for all property taxes due on the property. Generally the bank will attempt to sell the property using a Realtor. If unsuccessful the property will likely be sold at a second auction.

Foreclosures in all forms are an excellent investment option when available. We will be discussing several foreclosure investment strategies in this ongoing article series. Look back for more information soon.

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