Preforeclosure Vs. Foreclosure - What's The Difference?
Hi folks,
OK, I'm a "newbie" here, trying to learn about shortsales. I've heard the term "preforeclosure" quite a bit. I've also heard "foreclosure" used quite a bit. What is the difference? :-? At what point is someone formally in foreclosure? Is it once the Notice of Trustee sale has been posted in the legal section of the paper? Is there a WAY to get these properties BEFORE they become public notice - that is, when someone is behind a few months in payments, is there a way to find out from banks, etc. before the notice of default is filed?
I'd sure appreciate any help you can offer! :-D
A foreclosure is a sale that is conducted on behalf of a lender since the mortgage or trust deed documents have a power of sale in them in the event of default.
A preforeclosure is a purchase directly from the owner who is under the threat of foreclosure.
Usually the first visible evidence that you are likely to have access to is filing of a Notice Of Default (in states that do not use NOD it may be a Notice Of Sale).
Occasionally, I hear of situations from private individuals about their friends or acquaintances that are having financial problems and who are not making payments on their notes, yet no notices have been filed. Someone else may be able to tell you how they actively find such opportunities.
The foreclosure proces has three stages:
Notice of default - the lender sends a letter to the owner stating they are late on their payment and want to work things out. This can last 1-6 months
Notice of Trustee Sale - the lender now sets a time and place to execute the foreclosure auction. This timeframe and process is closely dictated by the county/state. Up until the trustee sale (foreclosure auction) takes place, this property is considered a "pre-foreclosure" and you will try to buy the property from the owner who is in default on their loan. At the trustee sale, you bid on the property. The bank makes the opening bid to cover the loan balance and any legal fees and back payments, etc. You then bid against other investors/homeowners or sometimes the bank until someone is the sole high bidder, depending on the state/county/trustee you will need 100% of your bid price anywhere from before the sale to 30 days after (colorado wants the opening bid money in hand before you can bid!). If nobody bids up, the banks opening bid wins, and they now own the property.
Real Estate Owned (REO, Bank Owned) - the bank now owns the property and will try to sell it. If you an make the right contacts and have cash/fast closing lenders you can contact the bank directly. Otherwise they will list it with a realtor trying to get as close to fair market value as possible. Usually they reduce the price to account for any major repairs needed, and will drop the price regularly until it sells.
A great resource for info is to go to the auctions! ASk around. You will likely find a few people who will let you know enough info to get started.
In California there is no such thing as pre-foreclosure. You're either delinquent or in foreclosure ending in a trustee's sale.
Actualy most refer to a pre-foreclosure as a property that is delinquent but has not had a NOD filed on it, meaning its not in forclosure yet, hence the name pre-foreclosure. Depending on the lender the owners might not of payed a payment for over a year before they file on them, but I beilve the norm is about 3 months of missed payments before a NOD is filed.
Good luck and happy hunting,
James
I agree. But it's not a recognized legal definition and there is no pre-foreclosure list you can get. What confuses people is that in some states there is a pre-foreclosure stage but in California the term is useless.
thanks for the info radio