Ricky Mennie

Foreclosures 101

What is a foreclosure?

According to Wikepedia, “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.” To put it simply, foreclosure is a legal process in which a lender takes over ownership of a property when the borrower is in default of payment. Foreclosures can end in several ways, including pre-foreclosures, auctions and Real Estate Owned (REO), all of which are explained in further detail in this section. For prospective buyers, foreclosures can result in significant savings, since the lenders that take back the properties typically aren’t in the business of being landlords and will do whatever they can to sell them.

What are the two types of foreclosures?

Non-judicial, which occurs in deed of trust states. In this type of foreclosure, a third party that is empowered to foreclose to take back the property when the mortgage is in default holds title. Since the lender does not need to file a lawsuit against the mortgage holder to foreclose or take back the property, the foreclosures can take as few as 60-120 days.

Judicial, which occurs in mortgage states. Since the mortgage holder holds title and has to go to court to rectify the matter when the mortgage goes into default, this type of foreclosure can take much longer then non-judicial.

FYI: Florida is a mortgage state with a judicial foreclosure process.

Four steps to foreclosure

• Pre-foreclosure- This is the period during which a property owner starts missing payments but before formal legal action has been taken. During this time, a property owner may be more likely to consider any offer if it means saving their credit and avoiding full foreclosure.
• Notice of Default (NOD)- This is the first legal step taken in a formal process of foreclosure.
• The foreclosure sale- Depending on whether it is a judicial or non judicial process (each state varies), the foreclosure sale can take as long as a year. Judicial foreclosure sales are often held on courtroom steps as soon as a judgment is reached.
• Redemption period- This is the time period some states (not Florida) allow for a property owner to get title back, provided they pay the full balance of the loan and various fees. Prospective buyers need to know if they are purchasing a foreclosed property that has a redemption period, since they won’t want to make major improvements to the property till they know for sure it’s theirs.

Pro and some Cons to consider…

Pros - A foreclosed property can often be purchased at a better price. In fact, the savings can be so significant it can outweigh all of the following cons

Cons - Foreclosures can be emotionally draining since they are the result of another person or family loosing their Dream. Very often, foreclosed properties have been left empty, neglected and vandalized, resulting in immediate expenses for the new owner. The Legalities of purchasing a foreclosed property can be much more complex and challenging then a traditional real estate sale.

Contact The Mennie Group for details.