Pre-foreclosure Period

To begin a court foreclosure in Ohio, the appropriate court documents are filed in a local court. The borrower is then given notice of the court filing, usually by certified mail, regular mail, or personal service. If a borrower cannot be located, the lender may publish the notice of the court filing. After the notice has been properly delivered or published, the borrower has 28 days to respond or the court can find them in default. After the court makes its decision, the county clerk issues an order of sale to the sheriff.

The court allows borrowers to pay the debt amount within a certain time. If the borrower fails to pay, the foreclosure process continues. 

Notice of Sale / Auction

Before the foreclosure sale, the sheriff must obtain three appraisals and publish an ad in a local newspaper for three weeks. The sheriff then conducts a public auction at the courthouse. The sale price must be at least two thirds of the appraised value, and the property is sold to the highest bidder. After the sale, the court reviews and files an order confirming the sheriff’s sale. The sheriff prepares and issues a deed transferring ownership to the winning bidder. 

The borrower has a right to redeem the property at any time before the sale is confirmed by paying the balance owed and court costs.

What is Foreclosure?

Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens. The foreclosure process can end one of four ways:

1. The borrower/owner reinstates the loan by paying off the default amount to during a grace period determined by state law. This grace period is also known as pre-foreclosure.

2. The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.

3. A third party buys the property at a public auction at the end of the pre-foreclosure period.

4. The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction. These are also known as bank-owned or REO properties (Real Estate Owned by the lender).

Pre-Foreclosure (NOD, LIS):

Buying a property in pre-foreclosure involves approaching the borrower/owner and offering to buy the property outright. The borrower/owner can walk away with something to show for any equity in the property and avoid a bad mark on his or her credit history. The buyer has time to research the title and condition of the property and can realize discounts of 20-40 percent below market value.

Auction (NTS, NFS):

If the loan is not reinstated by the end of the pre-foreclosure period, potential buyers can bid on the property at a public auction. Buyers often are required to pay in cash at the auction and may not have much time to research the title and condition of the property beforehand; however, a public auction often offers some of the best bargains and avoids the unpredictability of dealing directly with the borrower/owner.

Bank-owned (REO):

If the lender takes ownership of the property, either through an agreement with the owner during pre-foreclosure or at the public auction, the lender will usually want to re-sell the property to recover the unpaid loan amount. The lender will then typically clear the title and perform needed maintenance and repair; however, the potential bargain for these REO homes is typically less than a pre-foreclosure or auction property. Bank foreclosures can become government foreclosures if the loan is backed by a government agency such as the Department of Housing and Urban Development (HUD) or the Department of Veterans Affairs (VA). In that case the government agency would be responsible for selling the property.

Why should I buy a buy bank-owned REO?

One of the primary advantages of buying a bank-owned REO property is that investors are purchasing a property without liens or other encumbrances. Before lenders make REO properties available for sale, they typically expunge all liens or claims against the property. Any cloud on the title — a second or third mortgage, mechanics liens, taxes or any other liens attached by creditors — are wiped out. Moreover, skilled investors can negotiate with the lender's loss mitigation department to discount the price to a fraction of its market value. Besides negotiating price, many buyers of REO properties also negotiate favorable lending terms below existing market rates.
 

What are the advantages of buying bank-owned properties or REO homes?

For real estate investors and homebuyers, bank-owned properties and REOs offer opportunities that are not available in the pre-foreclosure and auction phase of the foreclosure process. Buying bank-owned real estate offers the foreclosure buyer many advantages:

• Bank-owned properties are usually sold at below-market prices with great terms like low down payments and low interest rates.
• Buying bank-owned properties involves less risk and less competition.
• Foreclosures that are owned by banks are usually clear of any liens that may have been recorded against the property.
• Since the seller of REO homes is also the lender, you can negotiate with the bank to have them pay for all or some of the closing costs.
   

• Bank-owned properties are usually vacant because the banks have evicted the previous owner, saving the investor or homebuyer time, money and emotional toll involved in the eviction process.

Tips for Buying Bank-Owned REO Properties