The Three Stages of the Foreclosure Process

Buying a foreclosed home is a great way to get more home for a lower price. Foreclosed homes are often much cheaper than their actual market value because banks want to get rid of them so they can take them off their books. If you are planning on buying a foreclosed home this year, here are the three basic steps a home goes through during the foreclosure process.

1. Pre-foreclosure. This stage in the process occurs when the homeowner gets behind on their mortgage payments. After a few months of not receiving the payments on the home, the bank sends the homeowner a notice of legal action. This is what is known as the pre-foreclosure stage because the bank has not foreclosed on the home but the homeowner is still in default on their payments. Usually, the bank will file this default so it can become public information. The homeowner has the option of catching up on payments or, if the bank allows, the homeowner can do a short sale. Otherwise, the bank will foreclose on the property before long.


2. Auction – Once the bank forecloses on a property, it often goes to the auction stage. By the time the home reaches this stage, the homeowner has been evicted from the property and the bank wants to get the home sold as soon as possible because it simply isn’t earning any money for them. To purchase a home at an auction, you typically have to have the cash with you to buy it. If a buyer buys the house, they become the new owner and that is the end of it for the bank. However, if the home does not sell, it gets relisted by the bank. The auction phase is sometimes skipped depending on the demand for local housing.

3. Bank-owned properties – Bank-owned homes are homes that have been foreclosed on and the bank now holds the title to the property. A bank-owned home may have gone through auction already without being sold or it could have skipped the auction stage and went directly to the market depending on the bank’s decision. If the bank owns the home, the previous homeowner has nothing to do with the home any longer. As a result, you can deal directly with the bank and often get a better bargain on the property. Also, there should be no liens or other legal problems with the home when the bank has taken possession of it. You may have to do some repairs, however, to bring it up to code after you purchase it.

With thousands of foreclosures slated to take place in 2011, this could be the best year yet if you have been thinking about buying a home. Learn more about foreclosures so you know what you are getting into and get a lot more home for your money!