FORECLOSURES + PRE-FORECLOSURES

FORCLOSURES:
Foreclosures show up in the MLS just like any other listing-- in the middle portion of the listing, it will say “bank owned,” “REO,” or “foreclosure sale.”  When a bank repossesses a property, there is a foreclosure auction and if you are paying all cash and comfortable purchasing the property as-is with no inspections, there is definitely opportunity to grab something under market value.  If no one purchases it at auction, then the bank takes possession and adds it to his or her inventory.  When they are ready to out it in the market, it goes through normal channels and will appear on the MLS with everything else.  They are often listed a little under market value, although they are also generally in disrepair, as the prior owners would not have had the means to maintain the property.

PRE-FORECLOSURES:
Occur when an owner misses a mortgage payment.  When that happens, companies like Trulia, Zillow, Redfin, etc. are alerted and move the status of the property to “pre-foreclosure.”  It’s exciting to potential buyers, but really, its true meaning is that the owner has missed a payment. The owner still has the opportunity to come current and no legal proceedings have begun yet.  If an owner neglects to pay for three consecutive months, the bank can file what is called a “Notice of Default.” This is the first step in the foreclosure process and often, a real estate website will list homes that have an “NOD” filed on them as being “in fore-closure.”  The foreclosure process is long and tedious and a homeowner can come current anytime during the foreclosure process and the NOD will be lifted.  At this stage in the process, the home is still owned by the homeowner and has not yet been foreclosed on.  If the homeowner continues to be in default even after the NOD has been filed against the title, then the bank holding the trust deed can then set the auction date.  If the house does not get sold to the public on auction day, the bank will take title to the property and is not the new owner.  At this point, you may see it come on the open market, or it could take time.  banks sometime wait months or even years before they release an inventory to be sold. Keep in mind that all these time periods are minimums.  A bank can file an NOD after three months of missed mortgage payments, but sometimes they wait a year, or longer.  so in conclusion, when a property is listed as “pre-foreclosure,” it doesn’t mean anything except that someone has missed a mortgage payment.  It may eventually end up as a foreclosed property on the market, but more likely, the owner will work it out, either by paying the defaulted amount or working out a modification with the bank.