Homeowners in Distress

These days everyone is talking about foreclosures and buying distressed properties, the fallout from the sub-prime mortgage debacle.

What many people don't know:

• The process a property goes through before and after the lender takes control of it
• The issues, players, risks and opportunities involved in purchasing a property in distress

This tends to be a common path for an owner in distress:

1. The owner defaults on the loan (stops paying mortage payments)
2. The lender sends several letters warning owners they are in default and telling them they will foreclose if not brought up to date.
3. The lender places a "lis pendens" on the title of the property. This is a clear indication that the lender plans to get control of the property.
4. The lender forecloses on the property and takes control.
5. The property is auctioned to the highest bidder at the courthouse steps. If no bids match or exceed what the first mortgagee wants to net, the first mortgagee usually "buys back" the property and evicts the former owner.
6. The property becomes a "Real Estate Owned" (REO) property and is offered for sale by the lender.