What are Notice of Default properties? (NOD's)

A property enters pre-foreclosure after the owner misses a number of mortgage payments (usually three or more) and thus defaults on the loan secured by the property. At that point the lender files either a Notice of Default against the borrower/owner.

During the pre-foreclosure period, the owner may be able to stop the foreclosure by paying off what is owed (known as curing or reinstating the loan), by selling the property or by transferring ownership of the property to the bank (known as a deed in lieu of foreclosure). If the owner does nothing to stop the foreclosure, the property will be sold at a public foreclosure auction at the end of the pre-foreclosure period.

Why should I buy a Notice of Default Property?

Buying a property that is in pre-foreclosure involves creating a win-win-win scenario for everyone involved — the owner who gets out from under the property he can’t afford without damaging his credit, the lender who doesn’t want to be a property owner to begin with, and the buyer who purchases the property at a substantial discount.

Creating such a winning scenario takes persistence in contacting owners, careful research of profit potential and a willingness to walk away from deals that don’t make sense financially. But a properly structured pre-foreclosure purchase allows you to buy property at a discounted price — most investors recommend at least 20 percent to 30 percent below full market value — leaving you more room to profit from the property, whether you intend to live in it, resell it or rent it out.

Buying during pre-foreclosure also offers some distinct advantages over buying at other stages in the foreclosure process. Unlike buying at a public auction, you don’t have to produce a large amount of cash on the spot and you’re able to conduct a full inspection of the property before taking ownership. And unlike buying a bank-owned property, you don’t have to pad your offer price with the extra tens of thousands of dollars that it can cost a bank to completely foreclose and repossess a property.

What are Trustee's Sale properties?

Properties that have been scheduled for a public foreclosure auction through the recording of a notice of sale, called a Notice of Trustee’s Sale. The notice of sale is recorded at the end of any pre-foreclosure grace period given to owners who default on their mortgage payments. The auction occurs generally occurs within a month or two after the notice of sale is recorded, but the owner in default may be able to cancel the sale by paying off the amount owed or by selling the property.

How does a Trustee's Sale auction work?

Foreclosure auctions are conducted in a public place, often the county courthouse, at a specific date and time. Interested parties need to attend the auction to participate in the bidding, and the winning bidder is usually required to produce the winning bid in cash to successfully purchase the property.

Bidders at a foreclosure auction typically aren’t given any opportunity to fully inspect a property or even view the inside before placing their bids. And the winning bidder may not be able to take immediate possession of a property. The winning bidder may need to evict the former owners if they refuse to leave voluntarily.

While great bargains can be found at foreclosure auctions, they are not for the inexperienced or unprepared. Before trying to buy a property at a foreclosure auction you should consider carefully whether you have the cash, know-how and risk tolerance necessary to do so.

Can I get a loan approved to bid at a Trustee's Sale auction?

Most lenders won't approve you for a home purchase loan without a full inspection and appraisal of the property securing the loan. Unfortunately, those are not usually possible for auction properties. If you are able to secure a loan that gives you access to a cash account — such as a home equity loan — then you may be able to use those funds at the auction. Just make sure you are able to bring the funds to the auction in the form required by the trustee — usually a cashier’s check. Being pre-approved or pre-qualified for a loan will not qualify you to bid at the auction.

What are bank-owned or REO properties?

REO stands for "Real Estate Owned" by the lender. Properties in this stage of foreclosure have been repossessed by the bank/lender, either through a foreclosure auction or a deed in lieu of foreclosure, in which the owner in default transfers ownership directly to the bank

Why should I buy a bank-owned property?

Buying a bank-owned property is probably the most straightforward way of buying a foreclosure. Unlike a pre-foreclosure, you’re not dealing with an owner who is emotionally attached to the property and is probably not happy about leaving. And unlike an auction property, you don’t have to produce a large amount of cash to buy a property you haven’t even viewed on the inside. Instead, you’re dealing with a bank/lender who is usually pretty motivated to sell the property quickly.