Foreclosure: Defined
Foreclosure is the legal process by which an owner is deprived of
his interest in a property due to default on loan. When the
mortgagor/owner of the property fails to comply to the terms of a loan
and defaults on payments, the mortgagee/lender will file a Lis Pendens
(Notice of Default).
Stage One: Pre-foreclosure
There is a grace period of two to three months, known as
pre-foreclosure, for owners facing foreclosure during which
they can reinstate the loan by paying off the default
amount. A trustee or attorney will be assigned to each
foreclosure case and can be contacted to see if that
particular property is still in foreclosure or if it the loan
has been reinstated.
Pre-foreclosure is a time in which investors can negotiate
with a homeowner to purchase a property before they face
foreclosure and the associated credit repercussions. The
lender will post the default in the local paper's Public
Notice section. Today, many states have these public
notices online. For those that do not, you can locate an
online version of a local paper. The public notices will
generally be part of the classified sections. The
links provided to the left are public notice search
engines, where available, or collections of local newspaper
links where an online public notice search has not been
located.
In
researching a property, an investor needs to uncover the
market value, the amount owed, and any additional liens.
If repairs are needed, the investor should determine an
after-repair value (ARV) as well. (The market value is
the value of the property in the market as is.) The
amount owed and the existence of liens can be researched
though the county recorder.
Armed with this information, the investor then determines
his ability to buy. Money should be in place or loans
pre-qualified for in advance of any negotiation.
Contact is made by the investor or his agent with the owner
or his agent. If the owner is not represented by an
agent, it is sometimes suggested that first contact is made by
mail. Others suggest starting with a phone call, if they
are not on the national do-not-call list. Some investors
who begin with a call try to time their calls so they can
leave a voice message and prepare the owner for a follow-up
call. The owner will most likely be considering his
options, and because he has some time, he will most likely not
respond immediately. For this reason, even if the
investor calls first, a follow-up by mail is important.
When the investor finds and interested owner, and while he
is in negotiations with the owner, he will contact the
foreclosing lender and other lien holders. The lenders
and lien holders need to be notified of the investors intent,
and it is sometimes possible to negotiate a short sale--a
lower payoff amount to satisfy the debts owed.
See: Case
Study: Preforeclosure Search
Stage Two: Public
Auction
Stage Three: Bank-Owned Real Estate
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Southern Investor:
The Foreclosure Investment Resource
