Investing in foreclosed properties is a great idea but as a buyer / investor, you should be aware of the steps in the foreclosure process. We’ve created a short rundown that will prove helpful.
Step 1 – Delinquency Followed by Notice of Default
Once the borrower misses more than three months of payments, the lender issues a NOD or a Notice of Default. The homeowner can contact the lender and work out a solution. Almost all lenders are willing to work with the homeowner and delay payment for three to five months. These missing payments are tacked on to the end of the mortgage term and the home owner can use the 3 – 5 months to recover financially.
Step 2 – Negotiation
As a homeowner, you can negotiate even more with the lender to reach a solution to the problem. For example, in California, the lender is required to work with the homeowner to reach a working solution to the problem. The homeowner can also disclose his financial problems and explore options to avoid foreclosure. Some states also have a mandatory 30 day negotiation process to help the homeowner avoid the foreclosure process. If a solution is not possible, the lender must notify all parties and then file an NOD again.
Step 3 – After NOD Is Filed
The NOD is typically for 90 days. During this time, the homeowner has time to repay the loan and stop the foreclosure process. During this period, it is still possible to set up a new payment process or work out a solution with the borrower. However, if the lender is not willing to negotiate, the house will continue into foreclosure.
Step 4 – Trustee Sale
During this period, short sales are also possible. This can take place as quick as 21 days after the notice. A trustee will work with the homeowner to handle the short sale process and complete the same. At this point of time, the lender has full rights to refuse any further negotiation and sell the house outright. Lenders also have the right to demand upfront payment on the house. However, the foreclosure process may be stopped if the lender is willing to negotiate.
Step 5 – Auction
If the lender and owner cannot reach a settlement, the house will be auctioned and the owner has no option but to vacate the home for the new owner. The new owner owns the home via a Trustee Deed. The homeowner may negotiate with the new owner for a few days to vacate the property. The new owner can then fix up the property, rent or resell the home depending on what they want.
Foreclosure laws are the same all over the country; however, individual rules and regulations may vary. Banks will also have specific regulations that you have to follow while investing in foreclosed properties. Getting to know the local market and the rules and regulations is the best way to pick affordable properties and invest carefully in the foreclosure market.
