Commonly the term foreclosure refers to a lender taking back a home on which loan payments have fallen in arrears. But there are other reasons why the bank or various other parties may have a claim on the house and take steps to foreclose. Even an HOA can foreclose over the comparatively minimal dues owed!
The most common types of foreclosure are bank or lender foreclosures and tax foreclosure. Again, note that there is considerable difference from state to state. Laws and procedures for foreclosures vary from state to state. Time periods and processes can vary considerably.
In Texas there is no redemption for a foreclosed house. The foreclosure notice period before auction is 21 days, after the actual foreclosure notice has been sent to the homeowner-borrower. initial period for notice of default. There is usually a period before this after an initial Notice of Default is sent, after one or more payments are late.
Foreclosure auctions in Texas are held once a month, always the 1st Tuesday in the month in every country at the same time. The foreclosure can be stopped at any moment up to the actual time of that particular property is announced AT THE AUCTION and bidding starts. This can happen if the owner can come up with back payments and get the loan reinstated with the bank before the house is auctioned.
Stopping a Foreclosure
In reality, the wheels of officialdom at banks usually grind much more slowly, and usually it is a whole different office or section of the bank that is handling the foreclosure/auction process and the loan collection reinstatement process. Some services an handle this, but even 24 hours is a very short notice to accomplish such a task.
On one occasions, I had put in an offer on a preforeclosure, and was awaiting reply from the bank. One Tuesday morning, my realtor got a call from the seller’s realtor informing us that the house was going to be auctioned that morning! And I already had 4 buyers interested in it!
If the house is foreclosed due to taxes, there is a redemption period. A tax deed sale does indeed transfer a clear title to the auction buyer, but there is a 6-month redemption period. If this is your homestead, the redemption period is 24 months.
But there is a statutory 25% premium required for the redemption, that is, the redeemer must pay back the costs to the tax lien purchaser plus 25% interest. Base costs include any fix-up done in the interim. After 12 months the interest rises to 50%.
If your house did not sell at the June 1 auction, it is retained by the first lien holder, and could go to public sale, listed with an agent (as Real Estate Owned, or REO). You as the previous owner would have a chance to buy the house, but this would be a new purchase, and other funding or cash would be required.
In an REO, technically a short sale might be involved, in that the purchase price could be lower than the remaining mortgage. But I would not expect the bank, at any rate, to sell an REO to the previous owner for less than that previous borrower had in the original mortgage.
Generally the term REO (Real Estate Owned) is used if the bank has actually taken the property back and holds it now in their name. Advertised properties on the MLS will be REO.
Short Sale or REO
The short sale process is often so onerous that some investors actually prefer to offer only on REOs. It is likely that in the case of upside-down mortgages (where the market value has fallen below the amount of the original loan), the asking price will be below the mortgage amount. In Texas, the term “short sale” is not used commonly for the negotiation of REOs, but I have found some in other states using the term this way.
But the same principle is involved if the final price is less than the mortgage held by the bank. If a house is upside down, it is highly unlikely that the bank can get its full amount back the full amount of the loan plus all the extra expenses it has incurred to foreclose and put the house on the market.
First posted in a discussion on Trulia.com 11 June 2010
Developed for Home Strategies Blog 7 February 2012
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