Please Help!: The Foreclosure Process

[Chris Swindle]

Hey all, 

I was hoping all of you smart investors could help walk me through the foreclosure process. I don't mean buying a property that is REO owned, I mean actually trying to buy properties before the bank gets them. In my experience, I have been seeing some pricing discrepancies recently in some neighborhoods I look at. Basically, a home will have gone through the foreclosure process, the bank will take it back at say $70K and then put it on MLS for $75-80K, which will then sell quickly. So some deals are there to be had. Could anyone help explain the process of 'bidding on the courthouse steps'?

[Christopher Phillips]

@Chris Swindle

NC is primarily a Trust Deed state. The owner gets a notice at least 45 days in advance before foreclosure process starts. This gives them a total of amount due and directs them to resources to help avoid foreclosure. There are some resources to find delinquent home owners through credit reporting, but it doesn't mean the owner will necessarily head towards default.

To officially start the process, the lender will issue a notice of default at least 30 days before a hearing. Note: some other Trust Deed states don't give you a hearing, just a 3 week period before the auction sale. Catching this notice of default is the easiest way to find out which properties might foreclose. The notice of default is publicly reported, so many sites post this information.

The clerk will send out the hearing notice to the owner at least 10 days in advance (20 days if they only post the notice in public somewhere). The clerk can postpone the proceedings up to 60 days if the borrower tries to work something out. So, if you can get in there early enough, you can help postpone the process for the owner, possibly get a good deal, and save their credit history from a foreclosure.

If they can't work something out, an auction notice is sent out with at least 20 day notice.

So, if you want to buy in advance of the auction, you would have to catch the opportunity during the periods above between the notice of default and when the owner can still work something out with the lender. Since it's a shortsale, the lender has to approve the sale if the owner owes more than the house is worth... The lender doesn't have an obligation to approve a shortsale. Since the process is nonjudicial, it doesn't cost as much as a foreclosure in judicial states. So, the lender might just take their chances at auction.

If the owner has equity, but just can't afford the house anymore, then it would just be a normal sale, but you still have to beat the timing before it heads to auction.

So, in Trust Deed states in general, you have to be quick. You need to have a process to catch the notices of default early enough to start reaching out to the owners. And, then you have to have financing in process to be able to close as quickly as possible or else you risk having the property go to auction.