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For long-time homeowners, any series of events that possibly culminates in foreclosure will be especially devastating. At the same time, bargain hunters sit at the other side of the table ready to make a deal, for pennies on the dollar.

Here, the bank is the ultimate arbiter of justice, standing ready to seize real estate collateral to make good and collect upon unpaid debt. Financial strategies will progress alongside the shift from pre-foreclosure to foreclosure in real estate.

Mortgage Default

Onyx Investments recognizes that the byzantine overlay of Federal and State laws warped the typical foreclosure and eviction timeline through the COVID-19 era.

From here, we might expect for a wave of distressed properties to hit the market, as the pandemic moratoriums expire. A dramatic spike in rates combined with a weakening economy would not bode well for real estate.

The foreclosure process begins at mortgage default and pre-foreclosure. In most states, the bank will post a notice of default and demand letter after 30-90 days of missed payments. These documents order late borrowers to immediately bring the mortgage current, or risk enforcement action.

Pre-Foreclosure and Loan Modification

The pre-foreclosure stage typically lasts for 180 days. In pre-foreclosure, the mortgage is in default, but the bank has yet to seize the home and auction it off.

In pre-foreclosure, the borrower may still exercise options. To state the obvious, banks take in deposits and lend out money, and are not seriously involved in the property management business. As such, banks would rather make a deal here, instead of taking on the legal battle and expenses for a foreclosure filing.

The bank might be open to extending a loan modification, after the borrower has shown that he has already exhausted all financial resources. Both sides will negotiate in good faith, with the expectation that the borrower will make smaller, regular payments at lower rates through extended terms.

Big banks, of course, operate within their own best financial interests and are under no obligation to approve of any loan modification offer.

Negotiating a Short Sale

A distressed homeowner might simply put the home up for sale early into the pre-foreclosure stage. Here, a prospective buyer might operate with several weeks to line up a professional appraisal and inspection, before securing a mortgage.

Homes in pre-foreclosure are often times in need of minor repairs, for lack of funds. Knowing this, Onyx Investments expects for prospective pre-foreclosure buyers to put in opening bids for at least 15% off comparable real estate in good condition.

In many cases, a cash-strapped borrower will owe more money on the mortgage than the home is actually worth. In negotiating a short sale, the bank agrees to accept less money than the outstanding mortgage balance due.

In some cases, you may owe more on the mortgage than the value of your property. You would then coordinate a short sale, where the bank agrees to accept less money for the home than the outstanding mortgage balance due.

The Foreclosure Auction and Eviction Proceedings

The bank will initiate the foreclosure proceedings after 180 days of missed payments, without any settlement arrangement. After filing a lawsuit, the bank will publish a notice of sale in the local newspaper, to announce the time, date, and location for the foreclosed property to be auctioned off to the highest bidder.

Seasoned investors will expect foreclosed property to sell for at least a 20-percent discount to market value. Foreclosed real estate is bought sight unseen and is expected to need extensive repairs to be functional.

Prospective buyers will arrive prepared at the foreclosure auction with large checks made out to themselves. Winning bidders will sign checks over to the bank, as 10% earnest money to take the home off the market, before buying the property outright.

The bank will reclaim the foreclosed property as real estate owned (REO) if it cannot be successfully sold off at auction. Immediately after the auction, either the bank or the new private owner will file an eviction lawsuit to have any remaining occupants promptly removed from the property.