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Foreclosure
Foreclosure is the legal process by which a creditor or lender recovers the amount owed on a defaulted mortgage loan.

Generally, foreclosure in real estate begins when a homeowner or borrower defaults on mortgage payments. When a borrower falls three months behind on payments the creditor or mortgage company commences an action against the borrower for the default amount. At this time the borrower is served with a summons and complaint notifying them of the foreclosure proceedings and allowing them to appear in court. The lender or creditor also files with the court a lis pendens, a recorded notice of the pending law suit.

Lis Pendens
Latin for “suit pending”, a lis pendens indicates that a mortgage foreclosure action has been commenced against the property to which the mortgage applies. Also referred to as a notice of pendency, a lis pendens is the first item filed during the foreclosure process and therefore the first notification of mortgage default on a property. It is a brief statement detailing the property section, block, lot, as well as the names of the Plaintiff (bank or mortgage provider) and Defendant (mortgagor or borrower).

Pre-Foreclosure
When a lis pendens is filed, the property is considered to be in “Pre-Foreclosure.” During this period, most major banks will allow the borrower to pay the defaulted amount and have the loan reinstated, or sell the property. In any case, the borrower always has the right to pay off the loan, receive his equity, and avoid having a foreclosure on his/her credit history up until the gavel falls at the auction sale.

By using the lis pendens to identify desirable properties early in the foreclosure process, you will have the time to research the title history, and if the owner consents, the condition of the property. You will also have the opportunity to contact the owner of a property in pre-foreclosure and pursue a purchase before the property goes up for auction. Purchasing a property in pre-foreclosure can yield savings of 20-40 percent below market value.

Judgment and Notice of Sale
If the default is not resolved in pre-foreclosure, a court-appointed referee files a report stating the amount due to the lender and the judge signs a Judgment of Foreclosure and Sale. This order confirms the amount owed to the lender and determines that the property will be sold at public auction. A Notice of Sale detailing the exact date, time, and location of the auction is published in a local newspaper once a week for four consecutive weeks prior to the auction in New York State.

Auction

Opening Price and Bidding
The foreclosing party sets the opening price. This amount is not required to reflect the fair market value or the amount owed on the property (i.e. additional mortgages or real estate taxes owed). Generally the foreclosing party is only interested in obtaining the amount owed to them. The property is sold to the highest bidder and anyone, including the lender, may bid. Competitive bidding may force the price above what is owed on the judgment, but it is also possible to purchase a property for as much as 35 to 50 percent below market value.

Procedure
Public auctions on foreclosed properties are generally held in the county courthouse. (Link to “Where auctions are held”). Both the Plaintiff’s attorney and the referee will be present. The referee opens the bidding. If nobody bids, the bank assumes title of the property. In this case the property is referred to as an “REO”, Real Estate Owned by the Bank. If only one person bids he or she gets the property. The successful bidder signs a memorandum of sale at the conclusion of the auction.

Keep in Mind (Terms of Sale)
Prospective bidders cannot view the inside of the property unless the owner consents. All properties are purchased “as is.”

The successful bidder is usually required to pay 10 per cent of the bid price in cash or equivalent at the time of the auction in New York. Personal checks will not be accepted. Besides cash, acceptable forms of payment are Money Order, Bank Check, or Certified Check. (You may be required to display to the referee that you possess on your person funds equal to the 10 per cent before he will close the auction). Go prepared with checks in several increments to ensure you can pay the 10 per cent on the spot.

The bidder must then pay the remaining balance and close title within 30 days. Unlike a regular real estate transaction, if you cannot make full payment or obtain financing to close within 30 days you will lose your 10 per cent down payment. Therefore, if you will require financing, secure such measures before bidding at auction. When the full amount is paid, the successful bidder assumes ownership of the property.

In Florida, the successful bidder is required to pay 100 per cent cash or equivalent the day of the auction. Twenty per cent of the bid price is expected in cash or equivalent at the time of the auction. The remaining funds are required by the end of the day.

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