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Foreclosure Overview

A foreclosure occurs when a property owner cannot make payments on their mortgaged property allowing the lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when the lender files a public default notice, called a Notice of Default or Lis Pendens. The foreclosure process can end in a variety of ways.

  • The owner can reinstate the loan by paying off the default amount at some point during a specific grace period which is established by state laws.
  • It is also possible for the owner to sell the property during the pre-foreclosure period.
  • The foreclosure process can end when the property is sold at a public auction.
  • If the property is not sold at auction the lender will likley take control of the property and sell it on the open market.

It is important to understand the different stages of the foreclosure process.

Pre-Foreclosure (NOD, LIS)

The first stage of the foreclosure process is known as pre-foreclosure, which means that the owner has already defaulted on their mortgage payments but actual
foreclosure hasn't happened yet. This property is not yet on the market for sale, and so no asking price is listed. When a property enters pre-foreclosure, the owner usually has at least 2-3 months to reinstate the property by paying off the amount in default. If you'reinterested in the property, contact the owner as soon as possible.

Auction (NTS, NFS)

If the loan is not reinstated by the end of the pre-foreclosure period, the property will be avaibale through a public auction. Auctions can be delayed or cancelled at anytime so it is always a good idea to reach out to the trustee or attorney indicated on the listing page to confirm the date, time and place of the auction. Always double check this information the day before the scheduled auction. A foreclosure sale is done through a court auction process where the highest bidder wins title of the property

Bank-owned (REO)

If the lender takes ownership of the property, either through an agreement with the owner during pre-foreclosure or at the public auction, the lender will usually want to re-sell the property to recover the unpaid loan amount. Bank foreclosures can become government foreclosures if the loan is backed by a government agency such as the Department of Housing and Urban Development (HUD) or the Department of Veterans Affairs (VA). In that case the government agency would be responsible for selling the property.