Upcoming Foreclosures

How do foreclosures and defaults work?

As far as I understand if a home owner misses 2 or 3 mortgage payments, his property is put on the county notice of default report. At that point the owner has 2 or 3 months to start making payments. If no payments are made, then the property is up for foreclosure and will be put on the auction. Is this correct? Do I have to pay cash on the auction?

Public Comments

1. This is not correct. The banks do not auction many of them off. They try to sell them on the MLS for a year or so.
2. This depends on the state... take a look at this site: http://www.realtytrac.com/foreclosure-laws/foreclosure-laws-comparison.asp In most states, once the borrower is 2-3 months behind on payments, the lender can file foreclosure proceedings. Depending on states, the auction can happen in as little as 2-3 weeks to as long as 2+ months later. For example, in Maryland, once foreclosure is filed, the auction usually takes place within 1 month of the filing. Paying cash at auction depends from state to state. In my area for example, you will pay the deposit (usually equal to about 10% of the original loan amount), then pay the balance within 14-30 days. If they cannot get a reasonable offer at the auction, they will buy the property back and it will become an REO (meaning they will market the home themselves).
3. It's more complicated than that. Way more complicated. At least here in California, the auction is the worst time to buy, as there's a reserve price (90% of appraisal, although it's intentionally low), plus you have to pay cash or the functional equivalent (with a non-refundable deposit!), and you don't get a real opportunity to inspect and investigate the property in depth. Probably better to wait until it fails to sell at auction. Find some good buyer's agents in your area. Especially in dealing with foreclosures, they're likely to save your backside.
4. Depending on the state you live in. most of the time they are listed by an agent chosen by the bank and are sold as a quick sale (means its name) low $ and fast closing.
5. The law varies from state to state. In California where I am located, the Trustee's sale gives you nothing but the interest of the lender. You do not get a guarantee of title. There are often other liens that are not released in the trustee's sale that you must pay. For example tax liens are not released and they now become your obligation. . Often, unless you really know what you are doing, you do not know if you are buying a loan that is in first position or second position or worse. If you buy a loan in second position you must pay off the first. I have seen inexperienced people at these sales buy a loan in second position thinking they were buying a first, only to discover a lender with a loan amount of several hundred thousand dollars in first position that also had to be paid. Then the property was not such a good deal. You cannot finance these properties. You must pay cash. In order to bid, you must show your cashier's checks to the trustee to prove that you have sufficient cash to complete the transaction on the spot, if you are the successful bidder. The previous owners are still in the property in most cases and think that they still own the property, so you must evict them. Since they think that this is still their home and they think that you are a mere trespasser, this can get ugly. They can also become very hostile hostile and desrtoy the property. By the time they are through you can be left with nothing but a shell. If you want to buy forclosures at trustee's sales, I recommend that you get a great deal of experience and that you attend a large number of trustee's sales and get lots of practice searching the County Recordrer's records for liens against the property before you try bidding on one of these properties. The characters that sell you books and tapes on how to buy foreclosures in most cases have never bought a house at a trustee's sale in their lives. Most of them are out of work actors who have learned that they can play the part of rich real estate moguls (even though they are often minimum wage waiters and waitresses) and convince people to pay them thousands of dollars for their worthless books and tapes and seminars on how to buy foreclosures and make millions. The only people making millions are the characters selling the books and tapes and seminars.