What is "Foreclosure"?

When a property owner becomes more than 30 days past due on a mortgage note, they have "defaulted". The party holding that note can decide to begin foreclosure proceedings at any point they choose when the note is in default, or they can choose to offer the owner some type of plan or concession to help the owner bring the note current.

Once a note holder decides to foreclose, there are certain steps they have to take, the end result being that the property is sold by auction at a "sheriff's sale" to satisfy the lien, or debt, held against the title or deed for that parcel of land. The note holder can in effect bid the amount they are owed, which means no money would actually change hands, and the title would pass to them so they could sell the property and keep the proceeds. Other parties may also bid, including any other 2nd or 3rd position lien holders there may be, as well as anyone interested in owning it. Typically payment is required within 10 days, so cash buyers or pre-qualified and approved buyers are the only ones prepared to buy at auction.

Many times the property owner will receive an offer to purchase while the foreclosure process is taking place, which is usually well below the amount owed. This, when approved my the lien holder and accepted by the owner subject to the lien holders approval, is called a "short sale". Sometimes a property owner will offer to give the lien holder "Deed in lieu", which means they give title of the property to the lien holder and vacate the premises, saving the lien holder the time and expense of completing the foreclosure process, which can take up to a year sometimes.

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