Foreclosure Defined. Ask consumers what they think of when they hear the term foreclosure, they may respond in a number of ways:
- Real estate-hungry banks stripping properties from owners
- Property owners' belongings moved onto the street
- Gutted or abandoned properties
- Homes being sold on the courthouse steps
Buyer clients may express interest in purchasing a "foreclosure" with the hopes of "scoring" a property for cents on the dollar.
- Few lending institutions want homes on their balance sheets
- Foreclosure is not a type of property
- Put simply, foreclosure is a legal process by which a defaulted borrower is deprived of his or her interest in the mortgaged property
A Look At Terminology & Process.
- Pre-foreclosure. The period beginning with initial mortgage default up to when the distressed property is sold. The length of what is considered pre-foreclosure varies, depending on state laws.
- NOD. In Colorado, we call this NED. Short for notice of default (NOD), this is an official notice from the lender that the borrower has defaulted on the mortgage. The NOD formally begins the foreclosure process. The NOD also outlines the reinstatement period.
- Reinstatement Period. In Colorado, we call this Right to Cure. The time stipulated in the NOD in which the borrower may reinstate the loan- making required payments and bringing one's account into good standing.
- Notice of Sale. If, after receiving the notice of default, the borrower does not or is unable to reinstate the loan, a notice of sale is recorded. The notice of sale explains when and where the foreclosure sale will be held.
- Foreclosure Sale. Also known as the sherriff's auction, sherriff's sale, or trustee's sale, this is when the property is auctioned for sale to the highest bidder.
- Redemption Period. The time that gives a distressed owner has the right to redeem real estate after the foreclosure sale. Redemption typically requires that the owner pay the sales price, interest and other costs. Note: this does not occur in Colorado.
- REO. Acronym for real estate owner, REO is the status of the property when the foreclosure sale is not successful and when ownership of the property is transferred involuntarily to the lender.
Foreclosure Can Happen Quickly...Or Not. Depending on state laws as well as the loan instrument uses (trust deed vs. mortgage), foreclosure proceedings can occur quickly, as in Georgia where the process period is a little more than 30 days. In other states, like New York, foreclosure proceedings can take more than 400 days.
Options for Distressed Homeowners.
- Sell and bring cash to closing
- Lender workout
- Short sale
- Deed in lieu of foreclosure- Does not forgive junior liens
- Do nothing and walk away
Although homeowners who are at risk of default or who have defaulted on their mortgage may believe that foreclosure is their only solution to mounting mortgage problems, there are options available to them.
Colorado Foreclosure Hotline- http://www.coloradoforeclosurehotline.org/