Foreclosure Investing For Dummies - Ralph R. Roberts

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19.)

       Sell your position in the property to another lienholder. If you control the first mortgage, for example, you can sell it at a markup to a construction company that has a lien against the property so that the company can protect its interest in the property; otherwise, it risks losing all the money it’s owed. (See Chapter 19.)

      Getting Up to Speed on the Foreclosure Process

      IN THIS CHAPTER

      

Brushing up on the differences in how foreclosures are handled

      

Investigating the early missed-payment pre-foreclosure period

      

Finding opportunities in the Notice of Default stage

      

Arriving at the foreclosure auction stage

      

Waiting out post-foreclosure, from redemption to eviction

      A common foreclosure myth is that it’s a one-time event. Homeowners miss a mortgage payment or two, and the lender swoops in and scoops up the property. The fact is that foreclosure is typically a long, drawn-out legal process that begins with missed payments, proceeds through some sort of legal system, and often results in homeowners losing their homes.

      An understanding of the foreclosure process reveals the various stages at which you can purchase properties. By knowing what to expect, you can often maximize your opportunities while minimizing costly mistakes.

      

Homeowners find themselves facing foreclosure for any number of reasons, including long-term illness or disability, overspending, substance abuse, divorce, and gambling, to mention only a few. As a real estate investor, you gain nothing by judging people in foreclosure. The best way to approach homeowners in foreclosure is with respect and empathy, offering solutions that enable them to leave the past behind and build a more solid financial future.

      The end result of foreclosure is that the homeowners lose ownership and ultimately lose possession of their property. That’s true no matter where you’re buying foreclosure properties. But different states and counties follow different foreclosure procedures. The two main procedures are

       Foreclosure by trustee sale, also referred to as foreclosure by advertisement

       Foreclosure by judicial sale, also referred to as judicial foreclosure

      The following sections describe these two types of foreclosure. To find out which process your state follows, check the appendix at the back of this book. Counties may also have their own local rules for how the sale is carried out, so visit your county courthouse (the Register of Deeds office), and ask for an explanation of the rules and regulations. I also recommend that you sit in on a few auctions before bidding on anything.

      Foreclosure by trustee sale

      A few more than half the states follow the trustee-sale route. When the homeowners purchase a property in one of these states, the county issues a sheriff’s deed that the trustee (which may be the sheriff in some areas) holds in trust until the mortgage is paid in full. After paying off the mortgage, the trustee releases the deed to the homeowners.

      Foreclosure by judicial sale

      Fewer than half the states follow a judicial foreclosure process. As the name implies, judicial foreclosure passes through the justice system: the state (circuit) or district court. When the homeowners default on their mortgage, the lender files a claim to recover the unpaid balance of the loan from the borrowers. The courts decide the case, which usually takes a long time to resolve — typically four to six months, but sometimes up to a year. During this time, unless the homeowners work out a payment plan or some other solution with the lender, they’re almost guaranteed to lose their home.

      Some lenders initiate foreclosure proceedings as soon as the homeowners miss one or two payments. Other lenders start sending reminder notices, often following a predictable timeline:

       Two-week notice: Some lenders give homeowners a two-week grace period, after which they begin to start calling the homeowners or sending them letters.

       30-day notice: When a payment is so late that it’s time for the next payment, the lender gets a little jittery and ramps up its efforts. The lender may even begin levying late-payment fees.

       45-to-60 days' notice: Unless the homeowners contact the lender and work out some new payment agreement, the lender typically sends out a certified letter insisting that the homeowners pay up.

       90-day limit: If the homeowners still haven’t contacted the lender or shown any commitment to make good on the loan, the lender typically initiates formal foreclosure proceedings. At this point, the lender transfers the matter to outside legal counsel (an attorney), and the attorney in charge posts a foreclosure notice, sometimes referred to as a Notice of Default (NOD). As soon as the attorney starts foreclosure by advertisement, these legal notices or advertisements begin to attract investors.
The missed-payment notice stage, before the start of foreclosure proceedings, is the best time for homeowners to act and the best time for you to step in to assist them. In 90 percent or more of the foreclosures I’ve been involved in, the homeowners’ best option is to sell the property, cut their losses, and find more-affordable housing. With your assistance, the homeowners still have time at this stage to take advantage of this option.

      For investors, the foreclosure process officially kicks off with the posting of the NOD or foreclosure notice in the county's legal newspaper or the local newspaper — private, for-profit publications that get the word out to prospective bidders. At this point, distressed homeowners usually realize the inevitability of losing their property. Some remain in denial; others become resigned to the fact, even though they may have several options to abort the foreclosure process and regain control of their property … and their finances.

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