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Understanding the foreclosure process
The word "foreclosure" evokes a variety of responses from people—fear, confusion, frustration, anger, and opportunity.
It's unfortunate that a property that has been foreclosed upon is usually at the expense of an owner experiencing a financial harsdhip. Typically a property owner has had a major life change (job loss, divorce, death, running out of money during remodeling, or other financial loss) that has lead to an inability to stay current on the mortgage payments. The property owner is issued a notice of default (NOD) and if the missed payments aren't made up within a certain amount of time the lender that holds the note can repossess the property. The bank or other financial institution (or private party if it's privately financed) takes ownership and responsibility.
Don't feel sorry for the bank.
Typically a bank that provides a loan to a borrower with minimal downpayment will require private mortgage insurance (PMI) which protects the bank from a certain amount of the loss it incurs in the event of a foreclosure.
Opportunities to invest in Sacramento foreclosures
If you're looking for quality Sacramento properties—including single family homes, condos, multifamily properties, duplexes, triplexes, fourplexes, apartment buildings, commercial properties, and even vacant land—at phenomenal prices, Sacramento foreclosures present an amazing opportunity to buy at below-market prices. Typically bank-owned properties may appear distressed or in poor condition, but this is often simply the result of a little bit of neglect (banks aren't in the business of owning real estate and don't usually care for these properties very well for the brief periods of time that they own them) and are largely cosmetic issues. A good property inspection and a willingness to do minor repairs can yield huge financial returns. In many cases, foreclosures are move-in ready and in excellent condition.
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Glossary of foreclosure terminolgy
Abandonment The situation that arises when a homeowner leaves a home without any intention of returning. If there is a mortgage on the property, a foreclosure will occur.
Auction The process of selling a property to the highest bidder. In the case of a foreclosure, there is usually a Reserve Price, which is the lowest amount the lender will accept. In an Absolute Auction, there is no Reserve Price.
Bill of Complaint The initial paperwork that is filed in many states to initiate the foreclosure process.
Compromise Sale A VA property sale in which the amount on the VA loan is greater than the home’s sale price. The VA may accept partial payment to satisfy the indebtedness and cover the loss.
Deed in Lieu of foreclosure also "Deed in Lieu" The borrower deeds the property in preforeclosures back to the lender to circumvent the foreclosure process.
Deed of Trust The legal instrument used in a three-party mortgage arrangement between the borrower, the lender, and a trustee. If the borrower fails to pay the mortgage, the trustee is preauthorized by the borrower to sell the house and apply the sales proceeds to pay off what remains unpaid on the loan secured by the deed of trust.
Defeased A legal term meaning to lose ownership, as in the case of a foreclosure.
Deficiency The amount a borrower who has lost real estate in foreclosure still owes to the lender if the foreclosure sale failed to pay off the outstanding loan.
D’oench, Duhme Doctrine Indemnification of the FDIC against counterclaims by borrowers in a takeover of a lender. This clears the way for them to assume all loans and enforce all foreclosures.
Dutch Auction An auction that begins at a starting price and is lowered until a purchase occurs.
Entry and Possession A foreclosure method used in some states whereby the lender, either peacefully or by court order, takes possession of the property from the borrower.
Execution Sale The sale of a foreclosed property by a sheriff pursuant to a court order.
"Flipping" The selling of a house quickly, usually at a profit. Often done with foreclosures.
Forbearance Prior to foreclosing on a property, a lender may agree to accept lower payments than originally agreed upon or add missed payments to the end of the loan to assist a borrower and to avoid foreclosing on te property. This is normally handled by the lender’s Loss Mitigation Department.
Hard Money or Hard Money Lender A lender who makes loans to parties who cannot acquire funds through traditional financing sources. These loans typically have interest rates that are significantly higher than in traditional financing. Some foreclosure investors who fix and flip acquire funds from these sources.
Judicial foreclosure A court-ordered foreclosure. The lender must first file and win a lawsuit to foreclose.
Junior Lien holder A holder of a right to foreclose on a property whose right is subordinated to the first lien holder.
Lis Pendens A recorded notice of a lawsuit in process, which may affect or "cloud" the title of property. It is the first indication of pending foreclosure in some states.
Liquidating Plan A plan by which a borrower repays missed payments to a lender over time. This is typicaly handled by the lender’s Loss Mitigation Department.
Loan Modification A procedure whereby the terms of a loan is altered due to a hardship of the borrower. This can include the rate, term, and monthly payment amounts. This is handled by the lender’s Loss Mitigation Department.
Loss Mitigation Department The department within a lender that oversees delinquency of loans prior to foreclosure. See Forbearance, Loan Modification, Relief/Recasting and Short Payoffs/Short Sales.
Mechanic’s Lien A lien allowed by law upon a property, used as security for the payment of labor done and materials furnished for improvement.
Mortgage Lien The right of a mortgage lender to sell a mortgaged property if the borrower fails to repay the loan as agreed.
Nonjudicial foreclosure A foreclosure on a mortgage without filing a lawsuit. Many states foreclose on properties in this way.
Power of Sale Clause The clause in a deed of trust or mortgage, by which the borrower preauthorizes the sale of a house to pay off the balance on a loan in the event of the borrower’s default. Usually, the trustee will hold the sale. In some states it is done by the sheriff’s office.
Relief or Recasting Modification of loan terms or repayment plans to assist struggling borrowers and to prevent foreclosure. See Loss Mitigation Department.
REO or Real Estate Owned A lender-owned property. Also, the department that holds and disposes of lender-owned (foreclosure) property within a lending institution.
Reserve Price The minimum amount a seller will accept at auction for a property.
Scire Facias A court command to a borrower requiring them to appear at hearing to show why a foreclosure should not be authorized.
Short Payoff/Short Sale The sale of property prior to foreclosure at a amount less than what is owed. Typically this amount will be reviewed and agreed upon by the lender and satisfies the terms of the loan. See Loss Mitigation Department.
Strict foreclosure A legal premise in some states that the lender owns a property and may simply evict the borrower for nonpayment and gain full and complete title free of the borrower’s right to redeem after the prescribed waiting period has passed.
Trustee’s Deed A type of deed issued to the buyer at a trustee foreclosure sale.
Vendee Loan A VA Loan made to help the VA resell a VA foreclosure. Can be made to a non-veteran.
Warranty Deed A deed in which the seller guarantees or warrants that good title can be traced back in time when the land was owned by the US Government.
