Dean Graziosi

Once the borrower has received the Notice of Default and the notice has been posted publicly and usually printed in the local newspaper, the formal foreclosure process is in motion.  The borrower’s failure to comply with repayment terms has activated the mortgage’s acceleration clause and the lender requires full payment of the loan.

If the Notice of Default does not result in full repayment, the lender next issues a public Notice of Sale.  A copy, stating the time, date and address of the public auction where the property will be sold is sent to the homeowner.  The notice is also posted on the property.

The sale is called a Sheriff’s Sale.  It is the second major stage of the foreclosure process and follows the preforeclosure stage, which commenced when the first payment was missed.  The typical Sheriff’s Sale involves the following steps:

·                     The auctioneer reads a description of the property and any legal notices related to the address.

·                     The bidding begins.  Usually the bidders have prequalified to participate by depositing a check in advance.  The bidding process continues until the auctioneer accepts the highest bid.

·                     The paperwork is drawn for execution by the successful bidder.  The successful bidder is usually given a grace period to arrange financing for the property.  Once the financing is in place and paid, the title is given to the new owner.

At this time, the original owner may still reside in the home.  The Sheriff’s Sale is not an eviction proceeding.  The successful bidder may initiate eviction proceedings at any time after receipt of the title.  The evicted homeowner may have to vacate within 72 hours.

In the event the property is not sold at the auction, the property becomes Real Estate Owned (REO) and ownership goes to the lender.  This usually occurs when prospective bidders feel the property is not worth what is owed.  If the borrower and lender agree to sell the property to the lender prior to the auction stage, this step can sometimes be avoided.  In either case, when a successful bidder is found or when the home enters the REO stage, the foreclosure process is essentially complete.

The entire foreclosure process usually take anywhere from six to eight months but can occur more rapidly.  Homeowners who anticipate difficulty making timely payments must act rapidly.  There are a number of possible remedies but inaction is not one of them.

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Most of the times, REO and foreclosures are spoken in the same breath and used interchangeably. However, there are lines of difference between the two. When one is asked the question of which property to buy, a REO or a foreclosure, the explanation would be tight - and not a very lucid one. Instead, knowing how these two are brought about would help the buyer to decide which would suit them best.

REOs and foreclosures have many similarities, and both are brought about by the same reason of the borrower not being able to match up to the repayment schedule. For both, the principal driving force is to get the property sold of to a new buyer.

REOs usually happen as a result of a property not getting a buyer in the normal process of foreclosures. Therefore, the lender is forced to own the property since there are no takers at that moment.

Usually, most real estate brokers would second the idea of owning a foreclosed property due to many advantages. In fact, many would reason that it is the safest bet for many first time buyers, which would translate into minimal efforts of ownership except for the money and some due diligence. Even statistics back the idea that REO sales are more popular selling methods when it comes to buying foreclosed properties.

Essentially, a REO sale happens by the normal method of selling, whilst the foreclosure sale is usually through the auction method. In the REO sale the lender offers a price that is usually lower than the market and sometimes gives support to the buyers in owning the home. However, in the foreclosure through auction the buyer has to bid for a price and bear the unpaid amount.

In addition, in the foreclosure proceedings the property would be received by the bidder in the ‘as is’ condition; sometimes the eviction of a tenant may also be pending. In the REO sales, the lender usually takes care of the issues like the down payments, paper work, eviction, etc. These advantages make REO sales a much better option than foreclosure sales.

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During the preceding three months, anyone who has tried to buy a property would have been advised to look at foreclosed properties. The first time investors with some understanding of the market would have definitely understood that there is a lot of help from the foreclosed properties. Most of the properties are much below the fair priced bracket and are great buys. However, few would have known the differences between short sale and REO properties, or known where to get the best deals. Knowing about it and actually getting the best deal is the gap filled by an experienced agent.

REO means Real Estate Owned. These are properties are owned by lenders, mostly by the bank, posted after an unsuccessful attempt at auctioning. Once the bid is put up, (usually up to the outstanding amount) and there are no takers for the property, the bank has to transfer the ownership legally to its name. Once there are distress signals from the property like delayed or missed payments, the value of the property is quickly determined.

The price of the property is understood by obtaining the Broker Price Opinion (BPO) or by issuing an appraisal. Once the value is determined, the property is put through short sale or a foreclosure. In the case that the property goes through the short sale or foreclosure process, it is not listed under a REO. In the cases where the property doesn’t go through the foreclosure auction, it is listed as a REO. The bank repossesses the property and allows it to go through the normal channels of selling.

The bank will usually remove the liens and other expenses; this “new” product would now be sold through another set of auctions or through professional sellers. As real estate investors or first time homebuyers, it makes a lot of sense to go after these properties. The value to be paid is well below the existing market price and the title of such properties is also very clear.

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