With America moving closer to its goal of becoming fully vaccinated and businesses moving into normal operation, the end of moratorium on foreclosures is near.
Interested investors should keep an eye on their jurisdictional rules because the process differs from state to state. While the process differs by state, the end result is quite the same; the lender will retake the property and sell it to the highest bidding purchaser. Before you become the highest bidder, learn more about the foreclosure process so you can expand your knowledge of ways to invest in real estate.
What Is Foreclosure
In general, foreclosure is the process by which a lender can take possession of a property and resell the property when the borrower has defaulted on the loan that secured the property (i.e, a secured loan). The lender typically resells the property at a foreclosure auction to recover the cost of the defaulted loan.
In general, there are three types of foreclosure proceedings a lender can exercise: strict foreclosure and judicial foreclosure. There is also another action that lenders can take that is not foreclosure but power of sale.We will briefly review each type below.
Strict foreclosure is the process by which a lender files a lawsuit against the borrower for payment of the defaulted mortgage amount. If the borrower fails to pay the requested amount, the borrower is allowed to take possession of the property. This action is only followed in a few jurisdictions and is permissible under Article 9 of the Uniform Commercial Code (UCC).
Statutory foreclosure (nonjudicial foreclosure)
Statutory foreclosure, also known as power of sale foreclosure, is a type of foreclosure that is exercised when a deed of trust mortgage contains a power of sale clause. A power of sale clause allows the trustee (the lender) to foreclose on a property that is in default without going through court proceedings. This process is quicker than judicial foreclosure proceedings. If power of sale foreclosures are offered in your state, this can be a quick way to invest in real estate.
The most widely used form of foreclosure is judicial foreclosure. A judicial foreclosure requires the lender to commence an action in court against the borrower to begin the foreclosure process. This process is lengthy and could take months or even years to complete. While lengthy, in many states this process gives the borrower an equitable right of redemption. This is something investors should consider when investing in this type of real estate.
Below is a timeline of general steps followed in a judicial foreclosure.
Note: These are general steps and the process may differ by jurisdiction.
Step 1- Notice default
The initial phase of the foreclosure process commences when the borrower fails to make one or more timely payments. During this stage, the borrower will receive a notice of default. The default notice is an official letter demanding payment from the borrower.
If the borrower and lender are unable to find a resolution at this phase, the action will move to the next stage.
Step 2 – Pre-foreclosure notice
Depending upon the jurisdiction in which the proceedings are taking place, this step can take many shapes and forms. In general, when the borrower fails to meet the demands of the notice of default, a pre-foreclosure notice is issued. The letter puts the borrower on notice that the lender intends to commence a foreclosure proceeding.
Step 3- Official notice of foreclosure
If the borrower fails to resolve the issue at the pre-foreclosure notice stage, then the aggrieved party can move forward with the next phase of the process, known as "lis pendens." Lis pendens is the official notice of foreclosure that is filed in the appropriate court. At this stage, if the borrower does not contest the foreclosure, the process will move forward to the next stage, a foreclosure auction.
Step 4 – Auction/sheriff sale
The foreclosure auction or sheriff's sale is the stage where the property is sold and investors can come with their paddle boards ready. The property is sold to the highest bidder, but once sold, the original owner still has time to exercise his or her right of redemption in most jurisdictions.
Additionally, if the property is not sold during the auction, it becomes Real Estate Owned property and can be purchased by an interested investor. This is another fertile ground for many real estate investors.
Millionacres bottom line
With the foreclosure moratorium coming to end, this may be the prime season for investors to purchase property at discounted rates. Given that, this could be the chance of a lifetime to expand your investment portfolio into real estate.