Once a home is foreclosed, it is sold at auction to the highest bidder. After the foreclosure auction, the fate of the property falls to its new owner. If a suitable bid is not offered at the auction, the bank retains the property as a "real estate owned property" and retain all rights to it.
If a suitable bidder comes forward at the foreclosure auction and offers an acceptable amount to the lender that foreclosed on the property, the property will be sold to him pending closing. Closing on a property purchased at a foreclosure auction takes approximately 30 to 45 days from the date of sale. The rights to the property do not transfer to the new owner until the closing is complete and all parties sign off on the closing documents.
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No High Bidder
If a suitable bidder does not come forward at the foreclosure auction, the bank becomes the new owner, retaining all property rights and responsibility for the care and maintenance of the property. The bank can choose to rent the property through a property management company or attempt to resell it in order to recuperate some of the losses that occurred with the foreclosure. In most foreclosure scenarios, the latter takes place.
After a foreclosure auction, some homeowners refuse to vacate the property. Under the law, the homeowner doesn't technically have to vacate on the date of the foreclosure auction. If a high bidder comes forward at the auction and the home owner refuses to leave the premises, the new owner can initiate eviction proceedings on the day of closing. However, it can take several weeks to complete the eviction. If the bank forecloses and retains the property as an REO, it can carry out eviction proceedings much more quickly.
Ultimately, the foreclosed homeowner is removed from the property, along with all personal assets, which are either moved to storage or placed on the curb in front of the house by a local sheriff's department.
In FHA or VA foreclosures, while the bank that originated the loan has ownership rights to the property, that government entity is responsible for selling it in an REO scenario. In these scenarios, special incentives can be offered to buyers utilizing the same type of financing or utilizing a loan from the bank that owns the property.
For example, on some FHA properties, homeowners using FHA financing can be offered a $100 down payment. On VA properties, eligible veterans could be offered closing cost assistance. In another example, if the new purchaser uses the originating mortgage holder as his lender, he could receive discounts on credit reporting fees or property appraisals.
After the property is sold at auction or as an REO, a deficiency judgment can be entered in the court system against the foreclosed homeowner. A deficiency judgment is calculated by taking the mortgage balance and subtracting from that the sales price of the property.
For example, if a homeowner owed $250,000 on a property that sold for $225,000 the lender that owns the property could pursue all collection activities under the law or within the court system for the $25,000 difference.