As Real Estate Investors, if you are going to work with sellers it is imperative you understand the foreclosure process. Knowledge is power in this game so it is important to know all aspects of a foreclosure in the state you are doing business in. To be thorough lets first define foreclosure, according to Wikipedia a "Foreclosure is the legal and professional proceeding in which a mortgagee, or other lien holder, usually a lender, obtains a court ordered termination of a mortgagor's equitable right of redemption". Next, depending on what state you are in the mortgage process can be a significantly different process. The two most important things to find out are if your state is a judicial state or non-judicial state. My recommendation is to go online to learn the differences between the two. Finally, you need to know the timeline for the foreclosure process, from beginning to end. A general timeline in most states would be as follows: Borrower is late on a payment, after 15 days late charges are now assessed and the bank tries to contact the borrower. After 60 days late the bank then sends a "demand" letter which demands payment in full including all late charges. The borrower is given 30 days to pay the bank or they will begin the foreclosure process. This period is typically known as the pre-foreclosure period. At approximately 90 days late the bank hires a local attorney to handle the foreclosure which is then followed by "LIS PENDENS". Lis pendens is latin for pending lawsuit. Once lis pendens is filed the process can vary in length from 30 days to 6 months. On a side note "Lis Pendens" is the best time to contact homeowners in regards to their property. My belief in that statement is due to the fact that most borrowers have given up once they have reached lis pendens. The next step involves notifying the county of the pending judgment or lawsuit; this is commonly known as the default period and is handled by the foreclosure attorney represented by the bank. We now come to the final judgment period; this is where everything is put together before the county auction. Dates are now set, advertising the property for sale is completed and off we go to the public sale, or foreclosure sale. If the property does not sell at the county auction the property now becomes an asset of the lending institution. These properties are referred to as REO's or Real Estate Owned. According to statistics 85% of all properties that go through the county public sale become REO's. That number is staggering but not surprising considering all the bank inventory we see every day in various markets. As investors, no matter what foreclosure stage you like to buy in it is important to know to realize the process as a whole. As always consult your mentor or legal counsel before playing in the foreclosure game, especially when it comes to pre foreclosure and auction purchases. Pay especially close attention to the liens on the property and how they affect your purchase.
About the Author
Scott MacDonald is President and CEO of Premier Choice Investments, LLC located in Jacksonville, FL. Premier Choice Investments purchases 5-10 homes per month in Northeast Florida and surrounding areas. Since starting the company in 2008 Scott has been investing in Real Estate full time and has experienced tremendous growth. Scott has quickly become an expert and guide for other real estate investors all over the Sunshine State.
