It is an unfortunate commentary, but when economic activity declines and housing activity decreases more real property enter the foreclosure process. High interest rates and creative financing arrangements also are contributing factors.

When prices are rapidly accelerating during a real estate "bonanza", many people go to any lengths available to get into the market through investments in vacation homes, rental housing and "trading up" to more expensive properties. In some cases, this results in the taking on of high interest rate payments and second, third and even fourth deeds of trust. Many buyers anticipate that interest rates will drop and home prices will continue to escalate. Neither may occur, and borrowers may be faced with large "balloon" payments becoming due. When payments cannot be met, the foreclosure process looms on the horizon.

In the foreclosure process, one thing should be kept in mind: as a general rule, a lender would rather receive payments than receive a home due to a foreclosure. Lenders are not in the business of selling real estate and will often try to accommodate property owners who are having payment problems. The best plan is to contact the lender before payment problems arise. If monthly payments are too onerous, it may be possible for a lender to make some alternative reduced payment arrangements until the owner's financial situation improves.

Let's say, however, that a property owner has missed three monthly payments, has ignored default letters and has not made any alternate arrangements with the lender. In this case, the lender may decide to begin the foreclosure process, called pre-foreclosure. Under such circumstances, the lender, whether a bank, savings and loan or private party, will file a notice of pending lawsuit (lis pendens) with the Clerk of the Court. If the property owner does not respond to the notice within the specified ammount of time, the Court can find the property owner in default and the lender can ask the Court to make a final ruling. The final ruling will set total amount due to the lender and the date for the foreclosure auction sale. The property owner can avoid foreclosure at any time up to the date of the auction sale by paying the total amount due to the lender.

The sale date is typically 20-35 days after the Court ruling, but this may vary depending on the individual Court. The Clerk of the Court issues a notice of sale containing the location, date, and time of the sale. The notice is published once a week for two weeks, with the second notice appearing at least five days before the sale.

The Clerk usually oversees the sale, which ordinarily occurs at the county courthouse at 11:00 a.m. on the sale date. The winning bidder must provide a 5-percent deposit and pay the remaining balance by the end of the day or a new sale is scheduled a minimum of 20 days later. After a successful sale, the Clerk gives a certificate of sale to the winning bidder.

Within 10 days of the sale, the Clerk transfers ownership to the winning bidder if no one disputes the sale. At this point the property owner has lost his/her home to foreclosure, his/her credit record will show the foreclosure for the next 10 years and the debt owed may NOT be written off by the lender. The entire process form first payment default to foreclosure is on average around 5 months.

With the recent attention given to foreclosure, there also has been corresponding interest in buying foreclosed properties. However, caveat emptor: buyer beware. Foreclosed properties are very likely to be burdened with overdue taxes, liens, clouded titles and may be in poor condition. A buyer should do his homework and ask a local title company for information concerning these outstanding liens and encumbrances, as well as instructing thorough home inspections. Title insurance may or may not be available following a foreclosure sale and various exceptions may be included in any title insurance policy issued to a buyer of a foreclosed property.

Your local title company or attorney, or your real estate sales associate at McCall GMAC will be happy to provide additional information. contact us