Foreclosures

Charlotte ForeclosuresForeclosures, a process that allows a lender to recover property in default to secure the loan, have overwhelmed the country the last 6 years.  Although a nation wide problem, over 50% of foreclosures come from just 5 states – California, Florida, Arizona, Nevada, and Illinois, in that order.  Millions of homeowners have been hurt by bad lending practices, falling home prices, unqualified buyers, and now the economy.  Currently, there are more than 2,000,000 homeowners in various stages of the foreclosure process.

The foreclosure process is a major player in the real estate market and will be for years to come. While some people have misfortune, others are finding an opportunity to buy into a foreclosure.

The Foreclosure Process

The foreclosure process moves through 3 phases of activity beginning with the pre-foreclosure period initialized by the lender or the owner wishing to get out from under the burden. The second action is foreclosure when the pre-foreclosure attempt fails and the bank has to pursue an auction to recover as much as possible to cover their risk. Some assets are taken over by others in the auction process, if not the bank is now the sole party in the Real Estate Owned (REO) status and must place the property on the market for sale, generally through real estate agents, to dispose of the property for the best possible price. Sometimes the banks are forced, by capital requirement, to dump the property at a distressed price further pushing prices down, but presenting a market for great deals and sometimes heartaches in the end process. Below is a brief summary of the phases through foreclosure and the circumstances of each.

Phase 1 – Pre-foreclosure

The home owner attempts to sell the home to hold off foreclosure. The owner may already have received a default notice or other notice. Sometimes the lender has been informed and is now a joint party in the sale attempt where the lender may determine what they are willing to lose in order to mitigate their losses. Where a bank has become involved, a buyer’s offer will be reviewed and approved by the lender so the bank has assumed control of the outcome at this juncture.  This is called the “short sale” status.

Phase 2 – Auction/Foreclosure

If the pre-foreclouse process hasn’t worked to everyone’s satisfaction, then the property goes to public auction where the public can bid on it.  If there aren’t any bidders, the bank has a new asset to deal with. The lender may also become involed if they feel it is in their best interest to not let the property go at a low bid.

Phase 3 – Bank-owned (REO)

When the other processes have failed to produce a buyer, the property and title ends up in the lender’s hands for disposition thru their REO (real estate owned) department.  The bank now has to sell the property as they have now become the owner.  Banks have a string of real estate firms who sell these properties for the bank. They are listed in the local MLSs and offered to the general public right beside other properties being sold by private individuals. The bank is in competition with other listings and anxious to be rid of the property. This is where many bargains are found and the process is simplier because there isn’t a homeowner involved in this phase. It’s just you and the bank with the middle man agent.