OfflineThe term foreclosure signifies all three stages of foreclosure:
- Pre-foreclosure
- Foreclosure Auction
- REO / Bank owned
Purchasing an REO, auction or pre-foreclosure IS a Foreclosure.
The Pre-foreclosure:
The Pre-foreclosure starts when the person who owns the property is late on their payment.
After the late payments the bank or finance institution will send out demand letters.
The demand letters are followed by a Notice of Default (non judicial foreclosure), Lis Pendens (judicial foreclosure), Published or official complaint. Once the foreclosure is to this point the foreclosure is also public which is where most investors find out about the pre-foreclosure.
The notification of default will state the date foreclosure is to happen (non-judicial) or the date the foreclosure is to be before a judge (judicial) who will often decide on the foreclosure date.
This is a mid range competitive foreclosure method. Most new investor, and some who do not know what they are doing purchase here.
The Auction
The auction can be done by the Sheriff in the community, auctioneer, or trustee who is working in behalf of the bank.
You will normally, depending on the area, need to bring a cashiers check to the auction for a percentage of the bid amount. The rest of the money is often due soon after the auction.
This is the least competitive, as far as the number of people, of the foreclosure methods available because of the finance requirements.
REO / Bank owned
If no one bids or the bidding is not going as the bank wants the bank or their agent will bid on their own behalf. The bank will buy the house. This is known as an REO.
They banks have restrictions from the government on how many houses they can hold and how long the bank can hold property without an intent to sell. If the banks do not follow the restrictions they can get lower credit ratings themselves, fees, additional interest cots from the Federal Reserves and so on as well as the loss of money from the non performing asset. In other words the banks want to sell and sell fast. This is why the REO properties are listed with Realtors so quickly.
This is the most competitive of all the foreclosure processes. This is also easy for investors to invest into because the bank will have taken care of all the liens and encumbrances and you can walk through the property so you know what you are getting into.
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Nate, thank you so much for clarifying that. It answers a lot of questions. And I didn't know about the government restrictions on the banks. We can use that to our advantage.
Rina
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REO / Bank owned
They banks have restrictions from the government on how many houses they can hold and how long the bank can hold property without an intent to sell. If the banks do not follow the restrictions they can get lower credit ratings themselves, fees, additional interest cots from the Federal Reserves and so on as well as the loss of money from the non performing asset. In other words the banks want to sell and sell fast. This is why the REO properties are listed with Realtors so quickly.
Another point about this is that banks have mandatory write downs on their REOs periodically (I want to say every 6 months). That means the property is worth less to them the longer it sits, REGARDLESS of what market value is doing.