Stages of foreclosure – For Investors

CommercialInvestingCenter.comIf you’re a real estate investor, there’s a good chance you already know what a foreclosure is, but show a little patience in case we have stragglers. A foreclosure is when the owner of a property (commercial or residential) falls behind in making mortgage payments and finds himself at risk of having the property seized by the lender. Technically, the foreclosure process could start after missing a single payment but it normally requires the owner to be two or three payments, or maybe even as many as six, in arrears for the lender to commence.

1. Notice of Default – After concluding the owner has no intention of making timely payments, the lender will register a Notice of Default at the County Recorder’s Office and notify the delinquent payee that a foreclosure action has been started. The home owner is also notified of the reinstatement period, which runs up until five days prior to the sale. At any point in that span of time the foreclosure will be stopped if the mortgage payments are brought up to date.

2. Notice of Sale – Once three months have passed and the home owner has not made arrangements to bring his mortgage current, the lender will set an official date for a foreclosure sale, at which time the property will be auctioned off to the highest bidder. This stage is called the Notice of Sale, which is recorded, once again, at the County Recorder’s Office, posted on the property itself, and delivered to the home owner. The sale must also be published in the county’s local paper for three weeks. After that, it’s all over except the auction…unless…

Investors should be aware that they might be able to pick up the property as a pre-foreclosure or short sale during the time between the Notice of Default and the auction, often at a substantial discount. How much of a discount? The answer to that is, “It depends.” A short sale can only be arranged with the consent of the lender. Don’t let this dissuade you from asking though. A full term foreclosure costs the bank time and money. Often they are willing to let the property go to a pre-foreclosure sale sooner to save themselves the hassle.

As an investor, one way to track down properties headed for foreclosure is to watch the local newspaper.

The Commercial Investing Center Team

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Flickr / Eversheds LLP

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