Late Payments: When a person finances a home with a bank, and then cannot meet its payments, the bank asks for the entire balance at once. Of course, if the payments are already late, most likely the person will not be able to pay off the mortgage. Public Notice. After six months of late payments, the bank publishes a notification, called Lis Pendant, notifying everyone that this is a distressed property. This notification warns the owner that he might lose the property and his rights.
Pre-Foreclosure or Shortsale: The owner can negotiate the debt, but if it is not possible, he can have an agreement with the bank and sell the property in a Shortsale. If he pays off the debt, the process ends here. The financing is forgiven but not all the additional debt with third parties, such as condo association, taxes, and other liens.
Shortsale: For a seller, a Shortsale is a relief, even though it can be traumatic. The owner is forced to sell its property and ruins his credit for at least three years. For a buyer, a Shortsale is an excellent purchase at first, but it can be costly in the long run if due diligence is not done with the right inspections.
Foreclosure Auction: If the residence does not sell fast, or the bank does not authorize the shortsale, the bank might force the owner to vacate the property and auction it in a Foreclosure. This is done in a public place, sometimes at the steps of the local county court or in front of the property. The sale is announced in all the official papers of the region and the buyer with the highest bid must pay in cash. The owner has a last chance to redeem his property.
REO – Real Estate Owned: If the bank still does not sell the property at the Foreclosure auction for an acceptable amount that covers the debt and its expenses, the bank pays all the pending liens, cleans up the title, and prepares the property for the new step, giving it to a REALTOR® to be placed to be sold as an REO, along with other regular properties.
Foreclosure and REO
- For an owner, the sale of a Foreclosure or REO property ruins his credit for seven years.
- For a buyer, an REO is always a good investment, as the bank clears all pending liens.
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