The Terms of Foreclosure

The term Foreclosure describes the process of a lender who tries to recover monies owed on a loan in default by a borrower.

The lender will try to sell the home via a short sale or take the home back as a REO (Real Estate Owned) property and put it up for sale. When a homeowner defaults on a loan, a lender may not move forward on the foreclosure process until the loan is ninety days delinquent to allow time for the homeowner to cure the default.

Once a foreclosure process has been initiated by the lender, the process can be terminated in one of four actions:

1) The homeowner can work with the lender to reinstate their loan by paying an agreed amount to cure the loan. Sometimes, a lender will allow to take the payments they are behind and throw it back into the principal and readjust their monthly payments or a payment plan for the outstanding would be devised so the homeowner can make partial payments until paid off.

2) The homeowner sells the property and takes the proceeds to pay off all loans thus avoiding the pains of a foreclosure and from further damage to their credit history.

3) The home is sold at a public auction

4) The lender takes the property back and sells it themselves. This is usually done when the owner signs the deed to the lender via (Deed In Lieu of Foreclosure), a short sale transaction, or buying the property back at the public auction.

To further clarify, a property that is facing foreclosure is usually referred to as a pre-foreclosure, as the process of foreclosure has not been finalized. Once a foreclosure had been completed, it is considered a foreclosed property.

Pre-Foreclosure - During the stage of being in pre-foreclosure, terms such as Notice of Default (NOD) and Lis Pendens is used. A NOD is used in non-judicial foreclosure states and it is a filing with the county in which the property is located that the foreclosure process has started. A Lis Pendens is used in judicial foreclosure states and this filing notifies to the homeowner that they are being sued for the breach in contract of default on the property.

Auction – If the homeowner is not able to cure their default, a Notice of Trustee Sale (NTS)or Notice of Foreclosure (NFS) is sent to the homeowner. This notice sets a date for the property to be sold at a public in which buyers can come and put a bid in to purchase the property.

Bank-owned – The term Bank-owned or Real Estate Owned (REO) is synonymous. These terms refer to a property that has been repossessed from a homeowner in default. A property can become bank owned during the pre-foreclosure stage if the homeowner agreed to a deed in lieu of foreclosure, which is the homeowner gave the property back to the bank to avoid foreclosure. The other way a property can become bank owned is when a property is not purchased at the public auction, in which case the property back in the lender possession.

Government foreclosures – If a property had a mortgage backed by a government agency, the government agency would own the property after it has been foreclosed.