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FORECLOSURE NOW
Everything You Need to Know About Shopping for Foreclosures
What is Foreclosure?
Foreclosure is the legal action the lender takes to reclaim ownership of a property after the borrower fails to meet the contractual terms of the loan.
Example:
Bank ABC grants a mortgage or deed of trust (depending on the state) in the amount of $200,000 to Mr. and Mrs. Olson. Their monthly payment PITI is $2000.
Month 1- borrower falls behind owes $2000 + late charges
Month 2- borrower is STILL behind owes $4000 + late charges
Month 3- loan is accelerated the borrower owes $200,000 plus late charges
What happens?
- The Mr. and Mrs. Olson work out a repayment plan with Bank ABC or they repay the bank in full
- If the Olson’s are NOT able to satisfy the loan or make an arrangement with ABC Bank, the bank has the option of recouping their losses with an auction sale
Types of Foreclosures
Mortgage States vs. Deed of Trust States
2 Parties Involved
You are the mortgagor, or borrower, and the lender is the mortgagee.
Right to Recover Funds
A mortgage gives the lender the right to sell the secured property to recover funds if you do not pay the debt.
Judicial (majority)
When a mortgage is used for security, foreclosure must usually progress through the court system. That type of foreclosure is called a judicial foreclosure.
Timeframe
12-18 months |
3 Parties Involved
You are the trustor, the lender is the beneficiary, and a third party is the trustee
Right to Recover Funds
The trustee (attorney, title company, etc) has the power to sell the house if your loan becomes delinquent. The lender must give the trustee proof of the delinquency and ask the trustee to initiate foreclosure proceedings.
Non-Judicial (majority)
The trustee must progress as allowed by law and as dictated in your deed of trust, but the process bypasses the court system, making it a much faster and cheaper way for the lender to foreclose.
Timeframe
4-12 weeks |
Review copies of the Conventional Mortgage or Deed of Trust used in your state at the following website:
- www.efanniemae.com/singlefamily/forms_guidelines/mortgage-documents/sec_instr.jhtm1?role=ou
- www.freddiemac.com/uniform
Most states permit both types of proceedings, but it is common practice in most states to use exclusively one method or the other.
- Foreclosure by Advertisement “Non-Judicial”
- Foreclosure by Action “Judicial”
- May be required due to a title problem
State by State Comparison:
Alabama |
Non-Judicial (mortgage) |
Alaska |
Non-Judicial (deed of trust) |
Arkansas |
Non-Judicial (mortgage) |
Arizona |
Judicial (deed of trust) |
California |
Non-Judicial (deed of trust) |
Colorado |
Non-Judicial (deed of trust) |
Connecticut |
Strict Foreclosure (mortgage) |
Delaware |
Judicial (mortgage) |
DC |
Non-Judicial (deed of trust) |
Florida |
Judicial (mortgage) |
Georgia |
Non-Judicial (security deed) |
Hawaii |
Non-Judicial (mortgage) |
Idaho |
Non-Judicial (deed of trust) |
Illinois |
Judicial (mortgage) |
Indiana |
Judicial (mortgage) |
Iowa |
Judicial (mortgage) |
Kansas |
Judicial (mortgage) |
Kentucky |
Judicial (mortgage) |
Louisiana |
Executive Process (mortgage) |
Maine |
Judicial (mortgage) |
Maryland |
Non-Judicial (deed of trust) |
Massachusetts |
Judicial (mortgage) |
Michigan |
Non-Judicial (mortgage) |
Minnesota |
Non-Judicial (mortgage) |
Mississippi |
Non-Judicial (deed of trust) |
Missouri |
Non-Judicial (deed of trust) |
Montana |
Non-Judicial (deed of trust) |
Nebraska |
Judicial (mortgage) |
Nevada |
Non-Judicial (deed of trust) |
New Hampshire |
Non-Judicial (mortgage) |
New Jersey |
Judicial (mortgage) |
New Mexico |
Judicial (mortgage) |
New York |
Judicial (mortgage) |
North Carolina |
Judicial (deed of trust) |
North Dakota |
Judicial (mortgage) |
Ohio |
Judicial (mortgage) |
Oklahoma |
Judicial (mortgage) |
Oregon |
Non-Judicial (deed of trust) |
Pennsylvania |
Judicial (mortgage) |
Rhode Island |
Non-Judicial (mortgage) |
South Carolina |
Judicial (mortgage) |
South Dakota |
Judicial (mortgage) |
Tennessee |
Non-Judicial (deed of trust) |
Texas |
Non-Judicial (deed of trust) |
Utah |
Non-Judicial (deed of trust) |
Vermont |
Judicial (mortgage) |
Virginia |
Non-Judicial (deed of trust) |
Washington |
Non-Judicial (deed of trust) |
West Virginia |
Non-Judicial (deed of trust) |
Wisconsin |
Judicial (mortgage) |
Wyoming |
Judicial (mortgage) |
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Foreclosure Basics and Making Money
There are three times to buy a Foreclosure:
- Before Pre-Foreclosure
- During At the Auction
- After REO or ORE
PRE-FORECLOSURE INVESTMENT STRATEGIES
- Lease Options
- Sandwich Lease Options
- Wholesaling
- Equity Sharing
- Short Payoff Sale
BUYING AT THE AUCTION INVESTMENT STRATEGIES
- High Bidder
- Rehabbing
- Wholesale
- Rental Property
- Interest
- Working with Junior Lien Holders
REO PROPERTY
- Short Sale
- Multifamily or Single Family Rental
- Rehabbing
- Wholesaling
- Commercial Rental
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