Foreclosure is a bank’s attempt to recoup value when a homeowner can no longer keep up with his mortgage. In many cases, a lender will try to work with a homeowner. If those negotiations fail or if the homeowner continues to miss payments, the lender initiates foreclosure. To be repaid, the bank will put the property up for auction. However, not all foreclosure properties sell at auction.
The foreclosure process generally begins with a payment default. After two missed payments, the lender will send a Demand letter, after which the homeowner usually has 30 days to get current. A Notice of Default is sent after 90 days of missed payments and the loan is transferred to the foreclosure department . A Notice of Trustee’s Sale is recorded 90 days after the Notice of Default. The home is sold at auction during the Trustee Sale. Once the house is sold, an eviction notice is sent and the homeowners must vacate.
The Trustee sale is the opportunity for the lender to recoup most, if not all, the value of the loan. The lender will use the remaining balance due on the loan, unpaid taxes, liens against the property and cost needed for the sale to determine a value for the opening bid. The foreclosed home is then sold to the highest bidder. The winner receives a Trustee’s Deed of Sale and the homeowner’s rights to the property are terminated.
Real Estate Owned
If the home is not sold or the lender does not receive an acceptable offer, the property becomes real estate owned or bank owned. The lender must then attempt to sell the property itself. At this point, a homeowner has anywhere from three to six months before potentially being evicted from the home.
Most lenders have established relationships with real estate agents to handle their bank owned properties. In these situations, an experienced agent may be able to sell the home in matter of months. Other factors include how easy the home is to sell. Homes in good condition and in stable neighborhoods sell fast, while homes in declining areas take more time to sell. When the property is difficult to sell, the lender may let a homeowner remain longer as a way to avoid leaving the home vacant and risk losing value. Technically, a homeowner can remain in a foreclosed home or real estate owned property until it is sold.
Based in Washington, D.C., Jeremy Watson is an engineer and urban planner. He has been involved with urban design, city infrastructure and business since 2008. Watson holds a Bachelor of Science in civil engineering from the University Florida, as well as a Master of Science in urban and regional planning from Virginia Tech.