Here is a brief summary of how the foreclosure process generally works:
Pre-Foreclosure: This is the stage when the bank has notified the home owner that their property is in default. During this stage, before an Auction date, the home owner can decide to sell their property as a short sale, pending the banks approval. In order to receive approval, certain document need to be submitted for review by the lien holders (banks). A short sale is when a home owner sells their property for less than what they owe the bank.
Once the homeowner decides to sell their property as a short sale, the property is then listed on the local real estate market (MLS), and can be purchased by a Buyer with cash or a loan.
Sometimes homeowners will decide not to sell and look for alternate methods to fix their loan default situation. But typically, avoiding the auction date (foreclosure) is good way to avoid hurting ones credit further.
Auction: This is the date the bank has set for putting the property up for Auction at the “courthouse steps”. At the Auction, the property can be purchased on that date only, but for all cash (loans are not typically accepted) and without the possibility of viewing the property beforehand.
Sometimes purchasing a property at the auction can be a way to obtain a discounted price. But, it really depends on the property’s situation. Years ago, most of the properties sold at auction were offered at a good discount. These days, it seems that about 80% or more are being offered for what is currently owed on the property; which many times happens to be above today’s current market value. So when this occurs, most homes are not purchased at the auction.
For a Buyer purchasing at an Auction, there are a few risks. Some of them are: as mentioned, typically there is not an opportunity to view the property prior to the purchase at the auction. Also, the Buyer would inherit any outstanding liens on the property. They are not “cleared” prior to the purchase. So, it will be up to the Buyer to do their own research on the property prior to the Auction date.
REO: When properties do not get sold at the Auction, they then become REO’s (bank owned properties) the next day. These properties are available for purchase, but not until the bank is “ready” to put the property on the market. One the bank has readied the property and process any of their internal paperwork, the property is then put on the MLS for sale.
These properties can be purchase with a loan or cash, and it is possible to view the property before hand. These properties typically vacant when they are put up for sale. So, it is possible to view the property beforehand, and once the purchase is complete the property will have no occupants (of course). Also, these properties can usually be purchased with a loan or cash.
This is a brief summary. If you have further questions this process, or real estate in general, please free to contact us.