Over the last five years, foreclosure has become a word that we hear nearly every day in conversation or in the news. Even with all this talk, most people do not fully understand the bank foreclosure process, the terminology commonly used by real estate agents, and the best opportunities for purchasing a property in foreclosure.
In order to get you the best information, I decided to write this article and provide you with an infographic that depicts the bank foreclosure stages, timeline and the best ways to buy. The tax foreclosure process in Tennessee is less common and follows a different path and timeline.
Tennessee is considered a non-judicial foreclosure state, which means that the bank foreclosure process happens outside of the courtroom without a redemption period. Most non-judicial states have a similar foreclosure process, but the rules and timelines vary per state. The judicial foreclosure states typically have much longer timelines and redemption periods for homeowners.
Notice of Default
The first stage in Tennessee is default. This technically occurs when the homeowner does not make the required mortgage payment by the due date. Most lenders do not consider a homeowner in default until they have gone 30 days without a payment. During this time, the lender will likely be in frequent contact with the homeowner.
After 90 days without a payment, most lenders will issue a notice of default. This is a legal notice to the homeowner that they have breached the mortgage (Deed of Trust) contract. At this point, most lenders will only accept a full payment of all missing payments and late fees.
If the homeowner owes more on his property than market value, the homeowner may attempt to sell the home as a short sale. Short sales are one opportunity to buy a home, but they are not as popular in Tennessee when compared to other states.
Short sales are frustrating to many buyers because of the extended time required to purchase a home and not knowing if the lender is going to accept the offer and close. The lender may decide to take less on the home than what is owed when approving a short sale. Many Tennessee short sales end in foreclosure.
You can also purchase Non-Performing Notes (NPN) from financial institutions at this state. This is purchasing the Deed of Trust from the bank. The buyer would be required to perform any foreclosure or eviction actions after the purchase. Non-Performing Notes are not very popular in this area, due to the positive market conditions. Warning! NPN purchases are for experienced investors only.
Notice of Foreclosure Sale
The second state in Tennessee is the Notice of Foreclosure Sale. This typically happens 120 or more days after missing the first payment. At this time the lender is required to post a public Notice of Sale three different times with 20 days advance notice. This posting could be in a newspaper, an online news source or in five of the most public places in the county.
In the second stage, the best purchasing opportunities are still with Short Sales and Non-Performing Notes.
The third stage of the process is the Foreclosure Sale. The foreclosure sale in Tennessee is conducted by an attorney in a public place, but not necessarily on the steps of the courthouse. At this sale, the property can be purchased by any individual or corporation. If the home does not sell for the reserve price at the foreclosure auction, the ownership will revert to the lender.
The best opportunity to purchase the home at this stage is at the foreclosure sale. The buyer will not likely have an opportunity to view the interior of the home before the sale and they will be responsible for the eviction of any occupants and their personal property. Due to these issues, purchasing a home at the foreclosure auction is for experienced investors only.
The fourth stage of a foreclosure is REO. REO is a bank term that stands for Real Estate Owned. Property in this stage may also be called Bank-Owned. This is a term to describe any property that the bank owns that it obtained by default. This happens when the home reverts to the lender at the foreclosure sale. Due to the contract requirements between lenders and services, the ownership of the REO property may change hands between financial institutions after the foreclosure sale. The lender can also sell a group of REO homes to other financial institutions, hedge funds or large investment corporations.
Prior to listing the REO in the MLS, the seller may decide to sell the REO at a post foreclosure auction. Many of the post foreclosure auctions are conducted online and some are still occupied. If occupied, the buyer may also be responsible for eviction of the current occupants.
The final stage of a foreclosure is Eviction. Most lenders will offer cash relocation assistance to occupants who reside in the property after the foreclosure sale. These occupants could be tenants or former owners. The assistance is offered to speed up the time to take possession of the home and offset funds spent on attorney fees to conduct an eviction.
When the property is vacant of occupants and personal property, the most common way a buyer purchases an REO is from an agent who specializes in bank-owned homes. Most REOs are listed for sale in the MLS, just like any other property listed for sale. They may still be called a foreclosure at this stage, but understand the foreclosure auction has already been completed.
I hope this article and infographic help you to understand the foreclosure process in Tennessee and the best opportunities to purchase a bank-owned home.
If you have more questions about the foreclosure process, Call Steve Jolly today at 615-519-0983!
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