If the Bower has a "power of sale" clause(
and most loans today include this) The non-judicial
process of foreclosure
is used. This simply allows the lender to exercise their right
to sell a property as the borrower agreed to in the loan agreement
and has defaulted on buy not making payments as agreed. The
process can vary depending on the terms outlined in the "power
of sale" clause, but most often it follows these
- First the lender files a "notice of sale" and it is recorded
in the county where the property is located. A copy is mailed to the
borrower at 25 days before a sale can happen. This gets the process started.
The borrower can stop the process here by remedying the default status
with the lender all the way up to the time of the sale.
- Next, for the 3 weeks leading up
to the sale the lender has to publish at least once per week a notice
of the upcoming sale in the local newspaper. Basically this notice
servers 2 purposes. First generate potential buyers by letting them know
date and place of sale, with a description of the property and the default,
as well as a "warning" to the borrower,
informing him the property is going to be sold and what rights he has
to stop the procedure.
- In New Hampshire The foreclosure sale must be held on the property
to be sold and is in an auction format, the highest bidder wins.
So when you see those late night infomercial of how to buy a $500,000
dollar home for 500 bucks this is what they are talking about. What they
don't tell you is the lender or bank has the right to bid also. They would
be nuts to let you buy it for 500 bucks if they are owed 400,000 for it.
The types of sales that can bring a $500,000 home for cheap are more commonly
tax sales, and again the bank will be there.
Should you go around chasing foreclosure auctions? Well there are a few
things to consider.
PRO Yes you could get a great deal and buy a property
for well under the appraised value.
CON Most likely you will not have a chance to the inside
and have no ideal of the condition, it may cost you more than equity in
fixing it up. Do your homework, and visit the property before you attend
the auction. Some investors have gotten great deals at these auctions,
others have lost their shirts.
CON This is an auction, you will need a
certified check to give to the auctioneer at the end of the auction.
CON You may have also bought all the other debt that the
borrower has on the property. Like back property taxes, IRS leans,unpaid
bills, secured credit debt, outstanding judgments. research the property
at the town clerks office before you consider bidding to know if there
are any other claims. Remember the borrower didn't pay their mortgage,
and that means they stopped paying others also.
BIG CON Ok, you did your homework and went to the auction,
and no bidding war went on, and you won. You go inside your new home and
guess what, the pervious owner is still there! Now you have to go through
the eviction process to get rid of them, and they are trashing the place
like a dog ripping up your kids homework.
In the end, Because of all the risk, the auction will most likely the
property reverts back to the bank that holds the mortgage. Attending the
auction is a good idea because you will see if there was any other interest
in the property. This will give you a good idea of the competition for