Understanding the Steps of a Bank Foreclosure

The bank foreclosure process is a several step process which is activated by a bank which owns a mortgage that is not being paid on. Typically a bank will take steps to correct the situation prior to beginning the bank foreclosure process. This is due to the fact that this foreclosure process is quite costly to the bank and under most circumstances the bank will end up losing money on the resale of the home as well making it a huge overall loss to the bank.

There are actually three common steps associated with a bank foreclosure. The first step is when the bank files for lis pendens or suit pending. Essentially this stage is when the bank files a formal document with the court system indicating that they have no received a mortgage payment for a period of time. Most banks will allow around six months of no payment before proceeding with this step.

The second step of the bank foreclosure process is when an attorney representing the bank formally requests an auction to be held on the house. The goal of this form of auction from the banks perspective is to hopefully sell the property off for more than what the mortgage is for. The opening bid always belongs to the bank and it is for the current mortgage amount. Under most circumstances no bids will be made on the property since in most cases the properties are worth less than what is owed on them.

The final stage of the bank foreclosure process is when the property transfers back to the bank. At this point the property is known as a bank owned property or real estate owned property. At this point most banks will attempt to sell the property at anywhere between ten and fifteen percent below market value since the property is considered to be a liability by the bank.

Can Buying Bank Foreclosure Properties be Profitable

The profit making potential of a bank foreclosure property varies widely based on the situation. Typically a bank foreclosure process can be bought in any of the three major stages of the entire foreclosure process. In the lis pendens stage the property owners may be allowed by the bank to perform a short sale. In some rare circumstances properties can be picked up at or below the market value. It is fairly rare to get a great deal in this stage since even if the owners try to sell at a great price the bank will usually decline the deal. Auctions on an extremely rare occasion can yield great deals. Unfortunately since most people who end up going into foreclosure fail to make any payments at all or only make one or two from the time they bought the property the mortgage value is usually equal to or greater than the actual property value. Buying bank owned properties in the right market can be extremely profitable but even these can carry potential pitfalls.

Under normal circumstances banks will list these properties at 10% to 15% below market value but they often require extensive rehab work. In some extremely weak markets bank owned properties can be found which are selling at 30% to 50% below market value. At this point these properties can become great investments.