How Does a Home Fall Into Bank Foreclosure
The foreclosure process is not as simple as the borrower simply failing to pay the monthly mortgage on time and the bank taking ownership of the property. The process varies depending on each States Foreclosure Laws, but the steps from the time a borrower starts to miss the monthly payments to the time the home falls into foreclosure are generally the same. For banks, foreclosure is the last resort toward recouping the loan that was made on the property.
Once the borrower has repeatedly missed payments, the foreclosure process begins with the lender filing a Notice of Default (also known as a Lis Pendens). The notice of default is a public notice that payments are in arrears and that the bank is taking legal action toward recouping their loan. This is the Pre-Foreclosure stage because the borrower may still have options to save the home from an actual foreclosure. Repaying the amount in default during this pre-foreclosure grace period is one option and allows the borrower to reinstate the loan. Another option is putting the home up for sale. The borrower may be able to sell the home, repay the loan and realize a gain if any equity was built during the borrowers ownership. If the home has lost value since the last purchase, the borrower might be able to negotiate a Short Sale with the bank in order to relieve himself of the debt obligation.
If neither of these options work, the home continues through the foreclosure process and goes to auction. Home auctions offer investment opportunities; however, they can be tricky for the novice Real Estate Investor since they usually require cash payment and often are bought without a thorough inspection of the property. The former owners may also still be living in the residence and the eviction process can be time consuming and costly.
If the home fails to sell at auction, the bank will generally take possession of the home and it becomes known as an REO or Real Estate Owned. This is the final stage of foreclosure for a home. During the final foreclosure stage, the bank will often make needed repairs to the home and clear any liens on the property in order to sell the home and recoup the loan. The bank will often sell the home for a loss in order to remove it from its inventory quickly. Foreclosed Homes can offer a buyer a large savings off market prices which is why they can be an attractive alternative during a Home Search.
Find out more about the bank foreclosure process: