Each state in the U.S. handles it’s real estate foreclosures differently. You need to understand those differences and know your specific state’s procedures. You may hear the terms judicial foreclosure and non-judicial foreclosure. Just what do these terms mean?

Judicial foreclosure
Judicial foreclosures are processed through the courts and begins when the lender files a complaint and records a notice of Lis Pendens (lawsuit pending).  The lender will state what the debt is and why the default should allow the lender to foreclose and take the property. The homeowner will be served with a notice of the complaint and will have the opportunity to be heard before the court.  If the court finds the debt in default, it will issue  a judgment for the total amount owed, including the costs of the foreclosure process.

Non-judicial foreclosure
Non-judicial foreclosures are processed without court intervention, with the requirements for the foreclosure established by state statutes. When a loan default occurs, the homeowner will be mailed a default letter and a Notice of Default will be recorded. If the homeowner does not bring the payments up to date, and any associated fees, a Notice of Sale will be mailed to the homeowner, posted publicly, recorded at the county recorder’s office, and published in local legal publications. After the legally required time period has expired, a public auction will be held. Auctions of non-judicial foreclosures will generally require cash, or cash equivalent, either at the sale or very shortly after. Some states start this process directly with the Notice of Sale.

If you are entering into the real estate marketing focusing on foreclosures and short sales, you must know the specific laws of your state.

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When calculating a short sale purchase offer, you must consider a few facts.

• It may take some time before the lender accepts and closing.
• With the declining market, the price may continue to drop while waiting for the lender to make a decision.
• If you wait too long after acceptance, the lender may deny the offer and the contract becomes void.
• You will be responsible for any repairs the property may need.

When putting together a short sale offer, the rule of thumb is to offer 82% of the estimated value of the property. To get the property value, compare the property to the area’s lowest comparable sales. Then, reduce the value by the cost of needed repairs. Remember, you will be purchasing the property as/is so document all repairs the home will need.

Each lender is different and will have different rules for the estimated value vs offer they will accept. However, the general guideline is 82% of the estimated value.

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A home can enter into foreclosure for a number of reasons.

1. Economic Recession/Loss of Job - Many times homeowners cannot control external financial factors like a slow-down in the economy, the closing of an office or plant, or loss of a job.
2. Predatory Lending - Lesser-known lenders will often approve buyers for amounts greater than they can afford and for extremely high interest rates, knowing full-well that the homeowners will not be able to cover their payments for very long.
3. Recent Divorce - Often times, a spouse is awarded the house in a dissolution, but after a few months is unable to cover the entire mortgage payment alone.  With a divorce rate of nearly 50%, it is easy to see why so many of these houses go into foreclosure.
4. Medical Condition - Unexpected illness can create important medical expenses that cannot go ignored, causing the mortgage to become overdue.  Some things are simply more important than a mortgage.
5. Buying a New Home/Two Monthly Payments - Sometimes homeowners become so anxious to move into a new home that they buy without selling their first house.

No matter what the reason, foreclosure is not the solution.  Be proactive and learn about the foreclosure process, to talk to your lender, and find out what you can do to help yourself out of the situation. Look into short sales and see if this is an option for you.

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A foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership of the property securing the loan. The foreclosure process begins when the borrower defaults on loan payments and the lender files a public default notice.

The foreclosure process can end one of four ways:

• The borrower pays off the default amount to reinstate the loan during a grace period known as pre-foreclosure.
• The borrower sells the property to a third party during pre-foreclosure, allowing the borrower to pay off the loan and avoid having a foreclosure on his or her credit history.
• A third party buys the property at a public auction at the end of the pre-foreclosure period.
• The lender takes ownership of the property, usually with the intent to re-sell. The lender can take ownership through an agreement with the borrower during pre-foreclosure or by buying back the property at the public auction.

Some common terms used in the foreclosure process are:

Lis pendens - Latin for “lawsuit pending”
Refers to the legal process of foreclosure.

NOD - Notice of Default.
This is the first official stage in the foreclosure process. The lender has a right to file the NOD at the very first late payment. In reality it’s usually two to four late payments before it’s done.

NOT/NTS - Notice of Trustee’s sale
A recorded notice that a trustee’s sale has been scheduled. If all late payments, fees, and penalties aren’t satisfied the property will be auctioned off to the highest all-cash bidder.

NFS - Notice of Foreclosure Sale
The public notice of an upcoming foreclosure auction.

REO - Real Estate Owned by the Lender
Many properties don’t sell at the auction so they go to the Lender and become REOs.

Find out how short sales can help you, as a homeowner needing help or as an investor.

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