Each state controls how foreclosures are processed under its jurisdiction. If a foreclosure on a piece of property is completed, it results in a foreclosure auction sale. Depending on the procedure set in place by state laws, the sale can be governed by the county sheriff, the lender or the lender's trustee. When a foreclosure sale is governed by the county sheriff, it is commonly called a sheriff sale.
Banks and mortgage lenders approve loans based on the borrower's credit rating and history, income and the value of the property being purchased. Before the loan is funded, the lender requires the borrowers to sign a security instrument, known as a mortgage or deed of trust. By signing the security instrument, the borrowers acknowledge that they do not own the property free and clear until the loan is paid in full. Additionally, the borrowers grant the lender permission to sell the property through the foreclosure process if they default on the loan. If the borrowers do default on the loan, the lender must proceed with the foreclosure under the laws of the state where the property is located.
In most states, borrowers have the option to stop the foreclosure process by paying the lender the amount requested. Often, the amount consists of the unpaid loan balance, plus interest and any fees acquired by the lender during the foreclosure process. If the borrowers cannot do this before the sale date, the sale will occur. Foreclosure sales are conducted in an auction format; the highest bidder wins the property. A deed will be issued to the winning bidder when he pays the amount. Foreclosure sales are advertised in local newspapers before the sale. They are often held at a public location, such as the county courthouse. However, some states allow the foreclosure sale to happen at the actual property.
A foreclosure sale conducted by the county sheriff is called a sheriff sale. State laws mandate whether a sheriff can hold a foreclosure sale. When the sheriff holds the sale, he is responsible for scheduling the sale and advertising it. The borrowers are usually notified of the foreclosure sale in writing. If state law requires the borrowers to be physically presented -- or served -- the notification, the sheriff will do so. After a sheriff sale, the sheriff will handle the post-sale transactions. This includes taking the payment from the winning bidder and preparing a deed. The sheriff acts as the grantor on the deed, putting the property in the new owner's name.
Real Estate Owned
A foreclosure sale can be unsuccessful. There may be no bids on the property, or the bid may not be accepted by the lender because it is too low. If either of these situations happen, the lender will take ownership of the property. Properties that are owned by the lender are called real estate owned, or REO, properties. Keeping these properties on the books is not financially beneficial to the lender. REO properties are usually sold directly by the bank at discounted rates to qualified buyers.