The Timeline of a Typical Foreclosure

What steps happen, when they occur, and how each presents its own unique and different investment opportunity.

Many of us think of a foreclosure as an auction sale that starts when everyone gathers around the courthouse steps and begins to bid on a property. Once the gavel comes down, it’s over, and the whole thing might take an hour to complete. But technically speaking, a foreclosure is a long series of legal processes that unfold over a period of weeks and months, one after another, culminating in the repossession of property by the lender (or in some cases, by a taxing authority or other interested party).

When you buy a home with borrowed funds – which is almost always the case in a traditional transaction – you pledge to pay back the loan and you also sign over your property as collateral to back up that promise. If you fail to make your payments on time, the lender has your permission – in writing – to take the house away and sell it if necessary to pay off the debt. This is a simplified explanation, but it is essentially how it works – and helps to emphasize how important it is that you read the small print before signing a real estate or mortgage contract.

Of course the advantage of this arrangement is that you can make a purchase of property – which is usually the biggest single purchase a person will make in their entire lifetime – and not use your own money. So it is a trade-off, and as long as we make our payments in a responsible manner, our house is safe from foreclosure. Without this system, it is hard to imagine where we would be. But we certainly would not have a thriving and lucrative real estate market.

In the event that someone defaults – or misses mortgage payments – the lender can legally put the foreclosure gears in motion, and the following is an explanation of how that timeline typically works. At each phase of the foreclosure process, there are opportunities to fix it or “cure” the foreclosure – and those also offer excellent chances for investors to step in and make money.

Phase One: A late payment.

Once a borrower misses a mortgage payment deadline, the foreclosure process officially starts. Especially in today’s exploding foreclosure environment, the legal departments of lending companies waste no time putting the legal wheels into motion. Within 60-90 days, the property will be taken back and sold at auction.

Many homeowners are highly motivated to sell during this phase, and by doing so they can avoid foreclosure plus the detrimental blemish of having a foreclosure on their credit history. Make them an offer and it can be a winning situation for both of you – but act quickly because time is of the essence.

Phase Two: Day 15-30

Late charges, fees, and penalties are tacked on to the monthly payment already past due. During this phase a lawyer or official trustee will take over the case and should contact the homeowner to resolve the problem and get the payments caught up and back on track. But many homeowners are scared to talk to their lenders during this period, because they are inexperienced and worried about foreclosure. That is a mistake – so if you are even in this situation, communicate with your lender and try to negotiate. Lenders hate to foreclosure because it can cost them up to 50 percent of their investment, plus it puts them in the unwanted position of being a landlord to a repossessed home.

Step in at this stage and you may get preferential treatment from the lender for helping you finance a “short sale” or a sale that would pay off the mortgage, free the homeowner from debt, and get you into a property at a bargain price.

Phase Three: Day 45-60

Although foreclosure laws vary from state to state, a homeowner who has not gotten paid up by this phase can expect to be foreclosed on within a month’s time. You can contact the lender at this stage and offer to buy the house or take over the loan payments. If the seller or bank didn’t go for it before, they may be willing at this late stage to accept a short sale. Be persistent and patient, and it may pay off in a big way. And be prepared to act, because if your offer is accepted you will need to move quickly to firm up the sale and buy the house.

Phase Four: Day 90-105

The legal representative responsible for the foreclosure process will start posting public notices in newspapers or at the courthouse. Investors can scan these for good deals and prepare to make a last minute offer or either attend the auction and bid on the foreclosure. The competition for discounted deals heats up, and if you are aware and prepared, you can snag the property before it gets bid up at the auction.

The Auction and Beyond

Finally, if all else fails, the property is sold at an auction to the highest bidder. Meanwhile the former owner – the person who defaulted on their mortgage – will be given notice to vacate the premises, and if they don’t move the Sheriff may intervene to evict them.

Sometimes the auction does not bring enough interest or bids, so the bank will take back the property and sell it through their REO department or a Realtor who specializes in this post-foreclosure listings. By contacting your local banks and brokers, you can be on their list of investors to call and notify about upcoming REO properties.

To take full advantage of every stage of the foreclosure process, study Dean’s various methods and strategies for buying, financing, and “locking up” properties. Foreclosures are happening in record numbers, and there are more than enough of them to go around and make plenty of investors wealthy in 2008. There is even a new bill – that just passed the US Senate and is now being debated in the House of Representatives – that might provide thousands of dollars worth of tax breaks to investors who buy foreclosures to help support the ailing housing market.

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Auction and Beyond

debbiejo's picture

I found the entire article very interesting and informative. One thing to keep in mind when writing these articles for the likes of me who are un-educated in Real Estate language, is to explain any acronyms that you use. What is REO? I am guessing it is Real Estate 'somthing'?
Deb

REO

Rina's picture

Hi Debbiejo.

REO is Real Estate Owned. It is a property that has been foreclosed on and has gone back to the bank/lending company. Those are some of the best deals you can find, especially right now because there are so many of them. The banks do not want to own properties. They just want to get their $ back. They hire a realtor to put them on the market, and if you watch, they can be at deep discounts quickly.
Hope that helps.

Rina

That was very informative.

Mrs.hall's picture

That was very informative. How would someone with no experience in investing get started in pre-forclosures?

foreclosure

Lambchop's picture

my thoughts have been just those for the last week...until someone gave me the idea of starting somewhere else like short sales and then go back to foreclosures later on.
Lambchop Smiling

Avoid being sued?

jrgnsn's picture

How can we be sued by taking over a foreclosure and how can we avoid it?

Best way to learn.

In reference to being a beginner. Yes, it can be very overwhelming. There will be terminologies and techniques you will not understand. When you run across them here or in your time of studying. This is the best time to make note of it and ask here on this website or do your own research to get better understanding. As you will find in doing so, you will begin to grow in your understanding rapidly and start to acquire tools available to build your own customized system that works for you and your own personality. There are many levels of investors around possesing many different levels of experience. It's great we have those like Dean Grasiozi and other investors here who have chosen to give back and help others to reach success on whatever level that will be. Don't give up and keep learning. That is so key. The best things in life are never easy. Just requires ACTION!

yup

sully's picture

nuff said...SULLY.

The Timeline of a Typical Foreclosure

I found the article interesting, and speaking from experience (foreclosure in the mid 80's). If people would just educate themselves, then they could better handle situations like foreclosures.

This is where Dean's message from Dean's list comes in to play. Under the title: Overcoming Your Fears.

Dean says - "Fear Can Paralyze People and Prevent Them From Taking Action" "So What is The Easiest Way to Overcome Your Fears?" "Knowledge Increases Your Personal Power to Overcome Your Fears".

Can you imagine how many people could have avoided foreclosure and all the misery it brings with it if, they only had the knowledge to overcome being foreclosed on? Perhaps that's another book for Dean to work on? It might be titled: Power to Overcome Those Foreclose Fears, Shooting Down Those Foreclosure Fears or Foreclosure Dead Ahead and The Power or Knowledge You Need to Bust Through It!

Oh well. Enough from a rook.

Remember - help someone in need.

Bob

Great!

debbiejo's picture

I saw a REO today when I was looking for RE in my area. I will look at all the other issues before I decide if it is worth pursuing or not. I have to look at the COMP and how the area is situated on the growth spectrum and/or economic variable scale.
They are my silly words to try and describe what I see as the areas that need to be looked at......lol
I am still a baby here......lol Smiling But I am serious about what I am doing!
I did not look at any home that was not at least 3 bedroom and 1 1/2 bathroom. Is this an issue?
Thanks again!

Help

I just signed up to a website and found some awesome deals on REO. Im not sure how to get my hands on them and the stipulations that they may have? How do i contact that realtor that knows about it? Has the property already been though auction? Im so confused but i want this so bad and know i can do it. Please help me if you can.

BARM

Wib's picture

Dear bradcollier and debbiejo,

Like yourselves, I am a newbie but after going through Dean's book (in conjunction with these awesome forums) I am beginning to get the hang of it and the big picture...

Good luck in your Real Estate Investing (REI) as well! Smiling

wib

Timeline of the foreclosure

Indiana-Joe's picture

Thank you for posting such a detailed recap on the timeline for foreclosure. It answered several questions that we previously had about the process. It also provided us with some reference action points and future ideas to look for some deals and help people out for win-win transactions. Thanks again and Believe and Achieve! Smiling

Time waits for no one.

pipeline's picture

I believe "Denial" is a huge part of what folk's facing foreclosure deal with first, they just don't want to believe it's happening to them, probally the worst time to approach them, but every case will be diff. When an owner has finally accecped thier fate, they might begin to realize.... that to get "Something" instead of "Nothing" for thier equity....is better than losing everything to the nasty bankers who want to take away thier live's dreams, & especially if the homeowners stand to lose a large dollar amount of that preicious equity in the end. We all know what will happen to thier credit...& so do they! Remember, "We want to help them!" So maybe you could offer them a small buildable lot(you bought at a tax-sale), &/or maybe a truck so they CAN move, throw in 5K...maybe 25K walking cash(or even other valuable items)... before the time flys by(& it will) for them to vacate, your offer might look pretty darn good to them. Of course we all know cash is King, but there are many other ways to structure a deal when a homeowner is in trouble(i.e. anyway you can think-up)that will fully benefit them, at the same time it helps you reach your goals as an RE invester.

Time waits for no one.

pipeline's picture

pipeline wrote:
I believe "Denial" is a huge part of what folk's facing foreclosure deal with first, they just don't want to believe it's happening to them, probally the worst time to approach them, but every case will be diff. When an owner has finally accecped thier fate, they might begin to realize.... that to get "Something" instead of "Nothing" for thier equity....is better than losing everything to the nasty bankers who want to take away thier live's dreams, & especially if the homeowners stand to lose a large dollar amount of that preicious equity in the end. We all know what will happen to thier credit...& so do they! Remember, "We want to help them!" So maybe you could offer them a small buildable lot(you bought at a tax-sale), &/or maybe a truck so they CAN move, throw in 5K...maybe 25K walking cash(or even other valuable items)... before the time flys by(& it will) for them to vacate, your offer might look pretty darn good to them. Of course we all know cash is King, but there are many other ways to structure a deal when a homeowner is in trouble(i.e. anyway you can think-up)that will fully benefit them, at the same time it helps you reach your goals as an RE invester.

My newest daily affirmation; I will take 1 step at a time, UP to success.

foreclosure

I have gotten a couple of my questions that I posted ealier.

I do believe that if you are willing to help others god will help you. You don't want to do it get a reward because if you do that reward will not come. Do it from the heart and your reward will be great.

Thank you all for your advice and may god be with you. This coming from a newbie to REI.

Understanding the term "Pre-foreclosure"

Hello All,

I am new to this process. As I scout online, I see that some real estate websites list some homes as "pre-foreclosure". What does this term mean exactly? Is it a legal term in any way?

How does a website get this information to begin with and how is the reader of the website able to use this knowledge to his/her advantage, if at all?

Does that name convey a certain readiness by the owner to sell the property?

Thank you,
p7sabr19

pre-foreclosure

I have a couple that called me from one of my signs
she said they were going into foreclosure.she called
me back and said it was not as bad as she though.

Now about two months later she calls me and her and her husband want to sell.

can I find a buyer to buy a foreclosure and make money or would I have to be able to buy it for cash?

I don't understand how I can find a buyer and make money because my buyers are going to want to see the property. this is a 5 bdrm home on 6 acres in orange county New York

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