How does the foreclosure process work?

[Juan Vargas]

I’m new to the real estate world and taking a tour of each creative way to obtain real estate. Wondering how this process works. 

[Eliott Elias]

Acquiring foreclosure properties is a great way to buy real estate. Opens he door to so many creative ways to buy real estate. Like subto, mortgage wraps, novation agreements

[Chris Seveney]

@Juan Vargas

There are two types of foreclosure, a judicial sale and a non judicial sale

Judicial sale goes through the court process and the lender files a lawsuit against the borrower. Typically in a judicial state it will take a year plus to foreclose, the conclusion of the foreclosure is the property goes to auction

In a non judicial state there is typically a deed of trust and the trustee will auction off the property

In todays economic environment (we buy notes so we have a pretty good pulse on what’s going on), foreclosures are rare and the properties being foreclosed upon mine as well be knocked down.

Why do I say that?

1. How had home appreciation been the past 2 years?

2. If you got thrown out of your house and have ****** credit is their suitable housing / rental people can find?

Homeowners have equity in their property and if the house is decent will not move, they will file bankruptcy and keep there homes and restructure the debt in ch 13.

[Chris Martin]

Quote from @Juan Vargas:

I’m new to the real estate world and taking a tour of each creative way to obtain real estate. Wondering how this process works. 

You can also find general information via google searches and via sites like Nolo (I am assuming you are in TX.) 

[Marty Boardman]

As Chris pointed out, there are judicial and non-judicial foreclosures. I buy foreclosures in Arizona (non-judicial) and Wisconsin (judicial).

The big difference between the two is that in non-judicial states the process is MUCH faster. It's governed by state statute (so the timelines are firm). For example, in Arizona when the notice of trustee's sale is filed the borrower has 90 days to bring their loan current (or pay it off in full) to stop the foreclosure.

In states with a judicial process, the timeline is dictated by the courts. There are judges involved and their calendars can get booked out far in advance. It's common to see a house in a judicial state linger in foreclosure for 2-3 years or more.

There are 3 phases of foreclosure:

1. Pre-foreclosure (this is the period of time between when the borrower is first notified they're in foreclosure and the auction date)

2. Auction (the sale of the property at the courthouse steps or in an attorney's office to the highest 3rd party bidder)

3. REO (now a bank-owned home because no 3rd party bidders purchased the property at auction)

I agree with Chris that overall foreclosure numbers are down the past few years, but they are not "rare". I've bought over 50 properties the past 3 years in pre-foreclosure and at auctions in Arizona and Wisconsin. If you understand how the process works and have the skill/desire there are a lot of opportunities there for you Juan.

Good luck!

[Bob Stevens]

Quote from @Juan Vargas:

I’m new to the real estate world and taking a tour of each creative way to obtain real estate. Wondering how this process works. 

 WHY? Why go down the path of MOST work/ resistance? Just connect with those that provide properties in the area.

[Peter Falk]

I recall working in brokerage during the recession ('08 era in WI) when pre-foreclosure sales (short sales) in WI and REO sales (bank sells after foreclosing and taking ownership) were much more common. Short sales were very slow to get approved and frustrating for buyers and sellers. In our market, if a bank ended up taking ownership back, they would typically always list it on the mls. I would generally advise buyers that unless they want to take on title due diligence and more risk on condition when bidding against the bank at a foreclosure auction/sale, to just wait and Offer on homes that the bank has already foreclosed on and you can negotiate inspections/tour the home, get clear title, etc. At least in our market, foreclosures remain low.