REO & Foreclosure

Foreclosure and REO Experts

Aurum Title has assisted lenders with foreclosures and REO transactions for many years. Our staff is experienced and professional. We go beyond the mere closing of the transaction and work closely with asset managers to assist with curing any pre-closing issues that may arise. Such issues may include: tax delinquencies, utility liens, or similar matters. Our goal is to close your transaction on time and thus, remove the properties from the bank’s books.

We also provide REO/Foreclosure banks with property reports for their “packaged” transactions. At competitive pricing, this allows the bank to decide the quality of the asset they are selling, whether such asset needs to be re-pooled or discarded in its entirety. This service, available to private equity firms or hedge funds, has been invaluable for grading a potential property or group of properties.

REO/Foreclosure Services Include:

  • Graded Property Report
  • Tax Snapshot
  • Legal expertise on the validity of the foreclosure
  • Licensed in 48 counties across Texas
  • Seasoned Title Examiners
  • There are many differences when purchasing an REO (foreclosed) property.

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Key Takeaways

  • Foreclosure is a legal process that allows lenders to recover the amount owed on a defaulted loan by taking ownership of and selling the mortgaged property.
  • The foreclosure process varies by state, but in general, lenders try to work with borrowers to get them caught up on payments and avoid foreclosure.
  • The most recent national average number of days for the foreclosure process is 857; however, the timeline varies greatly by state.

What Is Foreclosure?

Foreclosure is the legal process by which a lender attempts to recover the amount owed on a defaulted loan by taking ownership of the mortgaged property and selling it. Typically, default is triggered when a borrower misses a specific number of monthly payments, but it can also happen when the borrower fails to meet other terms in the mortgage document.

Understanding Foreclosure

The foreclosure process derives its legal basis from a mortgage or deed of trust contract, which gives the lender the right to use a property as collateral in case the borrower fails to uphold the terms of the mortgage document. Although the process varies by state, the foreclosure process generally begins when a borrower defaults or misses at least one mortgage payment. The lender then sends a missed-payment notice that indicates that month’s payment hasn’t been received.

If the borrower misses two payments, the lender sends a demand letter. This is more serious than a missed payment notice, but the lender still may be willing to make arrangements for the borrower to catch up on the missed payments.

The lender sends a notice of default after 90 days of missed payments. The loan is handed over to the lender’s foreclosure department, and the borrower typically has another 30 days to settle the payments and reinstate the loan (this is called the reinstatement period). At the end of the reinstatement period, the lender will begin to foreclose if the homeowner has not made up the missed payments.

IMPORTANT: A foreclosure appears on the borrower’s credit report within a month or two and stays there for seven years from the date of the first missed payment. After that, the foreclosure is deleted from the borrower’s credit report.

Consequences of Foreclosure

If a property fails to sell at a foreclosure auction, or if it otherwise never went through one, then lenders—often banks—typically take ownership of the property and may add it to an accumulated portfolio of foreclosed properties, also called real estate owned (REO).

Foreclosed properties are typically easily accessible on banks’ websites. Such properties can be attractive to real estate investors, because in some cases, banks sell them at a discount to their market value, which, in turn, negatively affects the lender.

For the borrower, a foreclosure appears on a credit report within a month or two, and it stays there for seven years from the date of the first missed payment. After seven years, the foreclosure is deleted from the borrower’s credit report.

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The 6 Phases of Foreclosure

Phase 1: Payment Default

Payment default occurs when a borrower has missed at least one mortgage payment—although the technical definition can vary by lender. After missing the first payment, the lender will reach out via a letter or telephone.

Typically, mortgage payments are due on the first day of each month, and many lenders offer a grace period until the 15th of the month. After that, the lender may charge a late payment fee and send the missed payment notice.

After the second month of missed payments, the lender will likely follow up via telephone. However, at this point, the lender may still be willing to work with the borrower to make arrangements for catching up on payments, which may include making just one payment to prevent falling further behind.

Once a borrower goes three months without making a payment, the lender generally sends a demand letter (or notice to accelerate) stating the amount in delinquency and that the borrower has 30 days to bring the mortgage current.

A mortgage in default can have three outcomes—return to good standing, be modified, or the property is repossessed or sold via foreclosure or voluntary surrender.

Phase 2: Notice of Default

A notice of default (NOD) is sent after the fourth month of missed payments (90 days past due). This public notice gives the borrower 30 days to remedy past due payments before formally starting the foreclosure process.

Most lenders will not send a notice of default until the borrower is 90 days past due (three consecutive missed payments). Thus, a borrower can often fall behind a month or two without facing foreclosure.

Phase 3: Notice of Trustee’s Sale

Depending on the state, the process for initiating foreclosure is different. In some states, nonjudicial foreclosures can be done that only requires filing paperwork with the necessary court to start the process. With this, the foreclosure e process can move rather quickly. Other states have judicial foreclosures, which require court approval for each step—meaning the process takes a bit longer.

Once forms are filed with the court or necessary approval is met, the lender’s attorney or foreclosure trustee will schedule a sale of the property. A notice of trustee’s sale (also known as a notice of sale) is then recorded in the county where the property is located—stating the specific time and location for the sale and the minimum opening bid.

The lender must also generally advertise the property (newspaper ads, signs, etc.) in the weeks before the auction, indicating that the property will be available at a public auction.

The time from the notice of demand to the auction date varies by state but can be as quick as 2-3 months. Up until the auction date, the borrower can still make payment arrangements or pay the amount due, including attorney fees incurred by the lender, to start the process.

Phase 4: Trustee’s Sale

The property is now placed for public auction and will be awarded to the highest bidder who meets all requirements. The lender (or firm representing the lender) will calculate an opening bid based on the value of the outstanding loan and any liens, unpaid taxes, and costs associated with the sale.

Once the highest bidder has been confirmed, and the sale is completed, a trustee’s deed upon sale will be provided to the winning bidder. The purchaser then owns the property and is entitled to immediate possession.

When a foreclosed property is purchased, it is up to the buyer to say how long the previous owners may stay in their former home.

Phase 5: Real Estate Owned (REO)

The lender will set a minimum bid, considering the property’s appraised value, the remaining amount due on the mortgage, other liens, and attorney fees. If the property is not sold during the public auction, the lender will become the owner and attempt to sell the property through a broker or with a real estate-owned (REO) asset manager.

These properties are often referred to as “bank-owned,” and the lender may remove some of the liens and other expenses to make the property more attractive.

Phase 6: Eviction

As soon as the auction ends and a new owner is named—either the auction winner or the bank if the property is not sold—the borrowers are issued an order to evacuate if they are still living in the property. This eviction notice demands that any persons living in the house vacate the premises immediately.

Several days may be provided to allow the occupants sufficient time to leave and remove any personal belongings. Then, typically, the local sheriff or law enforcement will visit the property and remove them and impound any remaining belongings.

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