FORECLOSURES

Properties that have been acquired by mortgage lenders because the owners have defaulted on the loan payments. The lender takes the property that was pledged as collateral for the loan when the payments are behind  ("in arrears" or "delinquent)" and the owners are said to be "in default". Lenders must follow the state laws where the property is located. Owners default on loan payments for a variety of reasons including divorce, illness, death of a spouse, and loss of employment. Lenders try to work out some kind of resolution with the owners to make up the payments in a process called "loss mitigation." 

This period is referred to as "preforeclosure." If efforts to work out a correction for the problem do not succeed, the lender will generally initiate foreclosure procedures after three months of non-payment.

**Note: This is the point at which Equita steps into the process to offer assistance to qualified homeowners with a loan to remain in their home.**

Otherwise, another party may offer to solve the problem by buying the property from the owner during preforeclosure, or from the lender at time of the public foreclosure sale (auction), or afterwards as an REO property from the bank. This presents an opportunity for investors and prospective home owners looking for bargains. Foreclosure properties represent a way to buy real estate because they can be purchased at discount prices as low as 50% (or more) below market value. These discount prices are possible because the sellers, which can be the borrowers, mortgage lender, or one of several government agencies, are motivated to sell as quickly as possible to avoid further losses. 

There are basically three stages to the foreclosure process. At each stage, the real estate is thought of as a distinct type of property that a new purchaser can acquire. A preforeclosure occurs when the lender initiates foreclosure proceedings as the result of a default. If the borrower cannot cure the default by paying the arrears, and does not sell the property, it is sold at a public foreclosure auction. If no one buys the property at the auction, it becomes REO and the lender is now the seller.

Note: There is a fourth stage for properties in which the loans are insured by a federal agency such as HUD or Fannie Mae, or guaranteed by the Department of Veterans Affairs (VA). When lenders foreclose on these types of properties they are reimbursed by the appropriate government agency for the loan amount and certain costs of foreclosure. The government then takes ownership of the real estate and makes arrangements to sell the properties to the public through contractors and realtors.

For the purposes of what we provide to homeowners at Equita, we will only cover the first three stages and property types.