Foreclosure Process Overview

Foreclosures at a glance

The term foreclosure is a familiar one. Possibly more unfamiliar to most people is an understanding of how the foreclosure process works and what they need to know to become involved in foreclosure investing.

Day 1
Foreclosures occur when a homeowner falls behind in their mortgage payments. A payment is considered late by the lender or bank starting the day after the mortgage payment due date.

Day 16 - 30
Most lenders will allow some type of brief grace period before they charge the homeowner a late fee. Lenders will typically begin attempting to contact the homeowner to find out if there is a problem.

Day 45 - 60
If the lender can not contact or make arrangements with the homeowner regarding payments, they will proceed with the next step of sending a “demand” or “breach of contract” letter to the homeowner. This letter is often sent anywhere from 45 to 60 days after payments have ceased. It will give the homeowner 30 days to pay all past due monies on the mortgage or the lender will begin foreclosure proceedings.

Day 90 - 105
The next step in the pre-foreclosure process depends largely upon the state in which the property is located. In most states, the lender will record a formal Notice of Default (NOD) at the local courthouse or country recorders office, publish details in a local newspaper (as required by law) of a pending public auction of the property, attend any hearings and/or file appropriate foreclosure documents with the court.

Day 150 - 415
If the homeowner fails to make the payments within the allotted time frame, the property is then sold at a public real estate auction to the highest bidder. In many cases, the lender or bank buys back the foreclosure property. In others, an investor interested in buying foreclosures steps forward and submits a winning bid.

The foreclosure process varies from state to state. A few require a judicial foreclosure proceeding that must move through the court system. A process that can be quite lengthy – sometimes taking up to a year before a sale of the property can be held. This is the case in the state of Florida. The majority of states, however, allow for some form of a non-judicial foreclosure process. In those situations, the entire foreclosure proceeding could occur in as little as two months from the time the homeowner receives a NOD.

Day 150 - 415+
Following the sale, some states may still allow the homeowner a “redemption period” in which they can repurchase their property if they have the money. Others allow the buyer to take immediate possession and ownership.

Investors not comfortable with bidding at public auctions have yet another opportunity to buy a foreclosure property at this stage. Many prefer buying a lender or bank foreclosure after auction because they know the title to the property is free and clear, the previous owners have vacated the property and the lender or bank is probably motivated to sell the property quickly. For the investor, it means another opportunity to buy a foreclosure property at a significant discount.