What Happens When the Bank Forecloses on Property?
- Although most people try to avoid foreclosure by selling the property and trying to work out a payment arrangement with the lender, foreclosure is sometimes inevitable. Outcomes can vary depending on circumstances, but generally, there are four basic conclusions, according to the website The Money Puzzle.
- A property owner may attempt to pay off the mortgage either with cash or through refinancing, according to The Money Puzzle. Throughout the foreclosure proceedings, even up to the point where the lender would take possession of the property, the property owner has the right to pay off the mortgage. The foreclosure becomes null and void as soon as the mortgage note is paid off.
- According to the Realty Trac website, some prospective purchasers approach homeowners during the pre-foreclosure period. At this time, the owner has the option to sell the property if they are able to pay the amount due on the mortgage with proceeds from the sale and other funds. Prospective buyers may realize a discount of up to 40 percent from market value due to the threat of foreclosure on the seller.
- After the pre-foreclosure period ends, the property may be sold at a public auction, according to The Money Puzzle. State laws govern where the public auction is held: the property itself, the county courthouse or elsewhere. Generally required to pay cash to the lender, the deed to the property goes to the highest bidder. The original owner receives no remuneration in this scenario.
- Known as real estate owned by the lender (REO properties) or bank owned, properties are repossessed by the lender at the end of the pre-foreclosure period. The lender can also buy back the property at the public auction or through a short sale foreclosure agreement with the owner, according to Realty Trac. In a short sale foreclosure agreement, the lender essentially agrees to accept less money than the worth of the loan secured by the property. If the property loan is backed by a government agency, such as the Department of Veterans Affairs or the Department of Housing and Urban Development, the property is repossessed by the government and sold at public auction.