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What are the different types of foreclosure properties?

 

There are basically three stages to the foreclosure process. At each stage, the real estate is thought of as a distinct type of property that a new purchaser can acquire:

"Preforeclosures" are still owned by the borrowers who are in default on one or more mortgage loan payments. www.hudhouses.com lists thousands of properties that are in this early stage. Pre-foreclosures are seldom found in Ontario, they are most common in the United States.  The most common remedy by banks and financial institutions in Ontario is Power of Sale, POS.

"Auction" properties have been posted for public sale and may be bought at the time of the foreclosure auction by arranging to pay the arrears plus other costs at the same time the lender legally takes ownership of the collateral.

"REO" is the term for "real estate owned" by the bank, savings and loan, or other lending entity after the foreclosure sale (or "auction") is concluded with no other purchaser buying the real estate.

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To summarize, a preforeclosure occurs when the lender initiates foreclosure proceedings as the result of a default. If the borrower cannot cure the default by paying the arrears, and does not sell the property, it is sold at a public foreclosure auction. If no one buys the property at the auction, it becomes REO and the lender is now the seller.

There is also a fourth stage for some properties. In the case of loans "insured" by a federal agency such as HUD or Fannie Mae, the properties are eventually acquired by the government. When such properties are foreclosed by the mortgagees, the agencies reimburse the lenders for the loan amount and certain costs of foreclosure. The government then takes ownership of the real estate and makes arrangements to sell the properties to the public through contractors and Realtors.

At each stage of the process, the owner is usually a very motivated seller. Watching the progression of properties through one type to the next will allow you to understand when is the optimum time for you to seize the opportunity to benefit by helping others to solve the problems that have arisen from the borrowers' difficult circumstances.

Foreclosure proceedings in Ontario are usually quite fast because the proceedings are typically laid out in the mortgage documents. Power of sale was developed in Ontario by lenders who wanted a quicker way to dispose of property as well as recover debt. Thus they began to include power of sale provisions in mortgages that would allow them to a) dispose of the property under the borrower’s default b) avoid the court process. Power of sale is now a part of the Ontario Mortgages Act.

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This series of articles is brought to you by A. Mark Argentino and other real estate related resources, including Canadian Real Estate Association CREA and the Ontario Real Estate Association OREA.

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Whether you are interested in a Power of Sale Property, a Foreclosure Sale or a regular property purchase, I can assist you with all of the complexities when you purchase or sell your next property.  Please don't hesitate to email me

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