Foreclosure Overview _ Foreclosure Process

Document Sample
Foreclosure Overview _ Foreclosure Process Powered By Docstoc
					Foreclosure Overview & Foreclosure Process

What is Foreclosure?
Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the
property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and
the lender files a public default notice, called a Notice of Default or Lis Pendens. The foreclosure process can end one of four ways:

     1.   The borrower/owner reinstates the loan by paying off the default amount during a grace period determined by state law. This grace
          period is also known as pre-foreclosure.
     2.   The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off
          the loan and avoid having a foreclosure on his or her credit history.
     3.   A third party buys the property at a public auction at the end of the pre-foreclosure period.
     4.   The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either
          through an agreement with the borrower/owner during pre-foreclosure, via a short sale foreclosure or by buying back the property at the
          public auction. Properties repossessed by the lender are also known as bank-owned or REO properties (Real Estate Owned by the lender).

This foreclosure process allows for three opportunities for finding bargains on foreclosure homes.

Pre-Foreclosure (NOD, LIS):
Buying a property in pre-foreclosure involves approaching the borrower/owner and offering to buy the property outright. The borrower/owner can
walk away with something to show for any equity in the property and avoid a bad mark on his or her credit history. The buyer has time to research
the title and condition of the property and can realize discounts of 20-40 percent below market value.

More about pre-foreclosures

Wondering what happens after foreclosure? Then please read on. Remember that understanding foreclosures is the first step for homeowners to
stop foreclosure. It is also the first step for investors to buy foreclosure properties.

Auction (NTS, NFS):
If the loan is not reinstated by the end of the pre-foreclosure period, potential buyers can bid on the property at a public auction. Buyers often are
required to pay in cash at the auction and may not have much time to research the title and condition of the property beforehand; however, a
public auction often offers some of the best bargains and avoids the unpredictability of dealing directly with the borrower/owner.

More about Foreclosure auctions

Bank-owned (REO):
If the lender takes ownership of the property, either through an agreement with the owner during pre-foreclosure or at the public auction, the
lender will usually want to re-sell the property to recover the unpaid loan amount. The lender will then typically clear the title and perform needed
maintenance and repair; however, the potential bargain for these REO homes is typically less than a pre-foreclosure or auction property. Bank
foreclosures can become government foreclosures if the loan is backed by a government agency such as the Department of Housing and Urban
Development (HUD) or the Department of Veterans Affairs (VA). In that case the government agency would be responsible for selling the property.

More about HUD foreclosures and VA foreclosures

Timeline for Foreclosure
Arkansas Foreclosure Laws
Arkansas foreclosures are handled both in court and out of court. A typical out-of-court foreclosure can last a little less than three months.

Compare All State Foreclosure Laws
Arkansas Overview
           Judicial                    Non-Judicial     Process Period           Sale Publication        Redemption Period              Sale/NTS

             Yes                              Yes           70 Days                  30 Days                 365 Days*                  Trustee

Both Kinds of Foreclosures are used equally

Pre-foreclosure Period

In Arkansas, foreclosures can be handled either in or out of the court system, but the lender must have an appraisal of the property taken prior to
the scheduled foreclosure date.

In a court-handled foreclosure, the court determines the amount in default and gives the borrower a short time to pay the debt to the lender. If
the borrower fails to pay the full amount owed within that timeframe, then the property goes up for sale, usually about 30 days after the court
considers the matter.

Power-of sale clauses in mortgages allow lenders to foreclose on property in default without going through the court system. To begin the
foreclosure process out of court, the lender will have a notice of default filed with county records. The borrower can stop the foreclosure process by
paying off the amount owed any time before the foreclosure sale.

Notice of Sale/Auction

For power-of-sale foreclosures handled out of the court system, the notice of default filed by the lender also serves as the notice of sale, as it
contains all the information pertinent to the sale (time, location, property description, etc.). Within 30 days of this notice of default being recorded,
a copy of the notice and the lender’s intention to sell is mailed to the borrower. The lender also posts a notice of sale in the office of the county
recorder. The notice is published in a local newspaper for four consecutive weeks, with the final notice being published at least 10 days prior to the

At the sale, which is run by an auctioneer, anyone can bid on the property, with the exception of the trustee, who may only bid on behalf of the
lender. The highest bidder is awarded ownership of the property and must pay the full bid price within 10 days of the sale. For out-of-court
foreclosures, the borrower has no right to redeem the property after the sale.

The property must sell for no less than two thirds of the appraised value. If this value is not met, the property must be offered for sale again within
12 months of the original sale date. If this occurs, the second sale awards the property to the highest bidder, regardless of the appraisal price.

If the property is foreclosed through the courts, the borrower has one year from the date of the sale to redeem the property, provided that they
pay the amount of the purchase price from the auction plus interest.

* Judicial Foreclosures Only