The Foreclosure Process

Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when the borrower, or owner, defaults on the loan payments and the lender files a public Notice of Default. The foreclosure process can end in one of four ways:

  1. The borrower/owner reinstates the loan by paying off the delinquent amount during a grace period determined by state law. This grace period also is known as pre-foreclosure.
  2. The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
  3. A third party buys the property at a public auction at the end of the pre-foreclosure period.
  4. The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction. These are known as bank-owned or REO properties (real estate owned by the lender).

This process allows for three opportunities for finding bargains on foreclosed homes.

1. Pre-Foreclosure (Notice of Default)

Buying a property in pre-foreclosure involves approaching the borrower/owner and offering to buy the property outright. The owner can walk away with something to show for any equity in the property and avoid a bad mark on his or her credit history. The buyer has time to research the title and condition of the property and can often realize discounts to the market. During this time, a short sale occurs when the owner's lender agrees to accept less than the total owed in exchange for release of the mortgage as a lien on the property.


2. Auction

If the loan is not reinstated by the end of the pre-foreclosure period, potential buyers can bid on the property at a public auction. Buyers often are required to pay in cash at the auction (or bring a cash deposit) and may not have much time to research the title and condition of the property before the auction. However, a public auction can offer some of the best bargains.


3. Bank-Owned (REO, real estate owned by lender)

If the lender takes ownership of the property, either through an agreement with the owner during pre-foreclosure or at the public auction, the lender usually will want to re-sell the property to recover the unpaid loan amount. The lender typically will then clear the title and perform needed maintenance and repair. Bank foreclosures can become government foreclosures if the loan is backed by a government agency such as the Department of Housing and Urban Development (HUD) and Department of Veterans Affairs (VA). Then the government agency would be responsible for selling the property. REO sales can offer bargains with more security as the bank has cleared the title and maintenance is being done. However buyers are cautioned to still obtain a home inspection and any related inspections during the inspection period in the Residential Purchase Agreement.


Joanne Fishman

Joanne Fishman

Managing Agent & REO Specialist
Coldwell Banker
6015 Paseo Delicias, PO Box 2225
Rancho Santa Fe, CA 92067
DRE: #01211313

858-945-8333 Cell
858-756-7899 Office
jf@sandiegoreoservice.com 		  Koko Whyte

Koko Whyte

REO Specialist
Coldwell Banker
6119 La Granada
Rancho Santa Fe, CA 92067

619-884-8737 Cell
koko@sandiegoreoservice.com


Member:

North San Diego County Association of Realtors, La Jolla Association of Realtors, California Association of Realtors, National Association of Realtors