The 5 Phases of Foreclosure

To fully understand the 5 phases of the foreclosure process, we must first understand what a “pre-foreclosure” is versus what a “foreclosure” is. Obviously, there is a difference and here we’ll explain it for those who may not understand these terms.

What is a Pre-Foreclosure Property?

A pre-foreclosure is simply a property that has a mortgage that is in default – meaning the owner hasn’t made any number of payments [usually three]. The lender has begun the legal process to repossess the property. The pre-foreclosure is the period of time between the initial legal filing of the Notice of Default aka NOD or Lis Pendens and the lender’s auction sale of the property.

What is a Foreclosure Property?

The most commonly recognized foreclosure is the bank-owned REO aka Real Estate Owned. These are properties that lenders have foreclosed on and repossessed for non-payment of the mortgage. First, the lender offers up the property at a “courthouse” auction. If it doesn’t sell at the legal courthouse auction, it then becomes a bank-owned REO. At some point after taking possession, the lender offers the property for sale through any number of sales channels including listing on the MLS aka Multiple List Service, selling through third-party auctions and through asset managers.

Properties in foreclosure go through a series of events before they are repossessed by a lender. The following are the 5 phases of foreclosure:

1. The Borrower Defaults:

The lender files a Notice of Default aka NOD or Lis Pendens to begin the foreclosure process to repossess the property. The time frame will vary by location and lender.

2. The Pre-Foreclosure Phase:

The owner can “reinstate” their loan by bringing it current or they can sell the property. Pre-foreclosure investors locate defaulted owners and work directly with them to purchase their property.

3. The Auction:

When an owner is unable to cure the default on their property, the lender offers the property for sale at a court auction. Auctions vary by state and by the auctioning entity.

4. Asset Management:

If the property doesn’t sell at auction, it is repossessed by the lender. At which time, an asset manager sells the property on behalf of the lender. Asset managers use real estate agents to sell the properties as REO’s through sites like the MLS

5. Bank-Owned REO:

Most bank-owned REO’s are listed by a real estate agent via the local MLS aka Multiple Listing Service. However, they are also listed on other third-party sites such as Hubzu.com and Auction.com.

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