Question: I have seen stories in the paper about foreclosures and that prompted me to look though the legal notices in The Herald where I noticed several notice of trustees sales slated for this month. Could you explain the process of foreclosures? I am curious as to how many of these forecloses actually become auctioned off at the courthouse. If the lender has submitted a dollar amount to recover, what do these properties actually sell for, who purchases these properties and how? Also, is it possible for a novice to become involved in purchasing these properties or would you recommend leaving this to the professionals? Where can I find additional information on this other than the get-rich-quick infomercials?
D.B., Marysville
Answer: A foreclosure is a fairly long, complicated process. Here’s how it works:
If you are more than 30 days late on your mortgage payment, the lender can begin foreclosure, but most lenders will give you an extra month or two before they start the process. There are three basic steps in the foreclosure process. First, the lender sends a notice of default to the borrower. That must be delivered at least 30 days before the next step can be taken.
The second step is to record a notice of trustee sale. This notice must be recorded at the courthouse and publicly advertised at least 90 days before the foreclosure sale takes place. The notice of sale is delivered to the property owner and all other interested parties, such as second mortgage holders and any other lien holders or persons with a legal interest in the property.
It is called a trustee sale because in this state we do not really finance property with a mortgage, we use a legal document called a deed of trust. The advantage of the deed of trust is that the lender does not have to go to court to foreclose as they would if they used a mortgage. Under the deed of trust, a third party called a trustee is appointed to handle the sale of the property if and when a lender is forced to foreclose on a borrower. The trustee is responsible for advertising the sale, delivering all the required notices and literally selling the property at auction on the courthouse steps.
After the notice of sale is recorded, the borrower has up to 11 days before the trustee sale to cure the default by bringing their mortgage payments up to date and paying all of the accumulated legal fees and other costs incurred by the trustee. This is called the reinstatement period. In most cases, that is exactly what happens. The homeowner is able to prevent the trustee sale by coming up with the money through a new loan or selling the property themselves before it goes to auction.
The trustee sale is a public auction. It is typically held at the county courthouse on the proverbial courthouse steps. Actually, they are usually held inside the doorway or in the lobby of the courthouse. The lender who is foreclosing makes the opening bid for the amount that they are owed. Often, there are no other bids because the amount owed is close to, or more than, the amount of money that the property is worth. Anybody can bid at the auction, but all sales are for cash. That means that if you are the winning bidder on a $300,000 house, you would have to pay $300,000 in cash right there on the spot. Most professional foreclosure investors show up at the auction with cashiers checks made payable to themselves. If they win the auction, they endorse the cashier’s checks over to the trustee and take title to the property.
As you can imagine, the fact that you have to pay cash at auction eliminates most of the competition. It is primarily the province of professional investors. If you are interested in trying to buy a home in foreclosure, your best bet is during the reinstatement period when you can make a deal with the property owner to buy them out before they lose their home at auction.
Investing in foreclosure properties can be lucrative, but it is very hard work and the most successful investors do it as their full-time job because you may have to look at more than 100 properties to find one deal that makes sense. If you want to learn more I refer you to a real estate author named John T. Reed. Go to his Web site at www.johntreed.com/realestate.html. Reed not only provides information about how to invest in real estate, he also has a very eye-opening section called “Real Estate Guru Ratings.” As you might expect, the truth about a lot of those get rich quick guys is much different than what you see on TV.
Mail your real estate questions to Steve Tytler, The Herald, P.O. Box, Everett, WA 98206, or e-mail him at economy@heraldnet.com.
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