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In St. Louis, we currently reflect one of the highest Foreclosure rates in the nation. In any given area, there are a large number of houses being foreclosed upon due to the increased number of loan defaults. This devalues the housing prices in the whole area by throwing a large number of under valued houses on the market. The Foreclosure market has not come anywhere near bottoming out yet, so the experts feel we can expect to see prices continue to fall and the number of properties for sale go up for the next 16-18 months.


Legal Definition of Foreclosure

Foreclosure is the legal proceeding in which a mortagee or other lienholder, usually a lender, obtains a court ordered termination of a mortgagor's equitable right of redemption. The foreclosure process as applied to residential mortgage loans is a bank or other secured creditor selling or repossessing a parcel of real property (immovable property) after the owner has failed to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said that "the lender has foreclosed its mortgage or lien". If the promissory note was made with a recourse clause then if the sale does not bring enough to pay the existing balance of principal and fees, the mortgagee can file a claim for a deficiency judgement.

The Process of Foreclosing

The process of foreclosure can be rapid or lengthy and varies from state to state. Other options such as refinancing, alternate financing, temporary arrangements with the lender, loss mitigation / short sale (if allowed by the lender) or even bankrupcy may present homeowners with ways to avoid foreclosure.


The Foreclosure Timeline


Day 1: Mortgage payment due today, the first of the month. Borrower misses it.

Day 16-30: Late charge assessed on payment. Mortgage servicer starts attempting to make contact to find out what happened.

Day 45-60: Servicer sends "demand" or "breach" letter to the borrower pointing out that terms of the mortgage have been violated. Borrower given 30 days to resolve the situation by paying the delinquent amount.

Day 90-105: Servicer refers loan to foreclosure department. Hires local attorney or other firm to initiate foreclosure proceedings. Depending on the state where the home is located, the servicer's representative may record a formal notice of foreclosure at the local courthouse, publish details of the debt in the local newspaper, attend hearings on the case and make appropriate court filings.

Day 150-415:  House sold at foreclosure sale or auction. Wide time range due to different state requirements. Borrowers in states with judicial foreclosures, or those in which lenders have to retake property titles via the court system, can get almost a year to straighten out their affairs before the sale. Those in nonjudicial states have as little as two months.

Day 150-415:After the sale, some states grant borrowers a "redemption period" in which they can still rebuy the property if they have the money. Others force consumers out immediately following the auction. (In Missouri there is no Redemption Period)


The Three Stages of Foreclosures

There are three ways to acquire distressed property, based on where the property lies in the foreclosure process. The three stages are as follows: Preforeclosure, Foreclosure and Post Foreclosure.

Pre-Foreclosure Stage (also known as Loss Mitigation Stage or "Short Sale"Period)

In the pre-foreclosure stage, also known as the Loss Mitigation Stage or "Short Sale" Period. Investors will likely be able to do the most good for the distressed homeowner and for themselves during this period of time. Pre-foreclosure is where further damage to the home owner's credit rating can be forestalled and the home may be transferred at a mutually agreed upon price before it is necessary to get the lender involved. The best potential leads to locate a property at this stage is your real estate agent or through business associates and friends.


Foreclosures FAQ
Deed In Lieu of Foreclosure

Foreclosure Stage

In the next phase, when a property is at the foreclosure stage, the best way to identify a potential property is through the County Clerks office. Find out where the notices of default are files and determine how to sort through the general index to discover pending foreclosure sales. Or Better yet and easier for you is to request that your address or e-mail address be placed on The Kiper Team's advance notice list for foreclosures in your areas of interest.

The foreclosure process itself will vary from one state to the next, depending on whether it is a title or lien state. This determines whether a judicial or non-judicial form of foreclosure is involved. Judicial foreclosures pertain to mortgages, rather than deeds of trusts and take significantly longer to complete. Non-judicial foreclosures pertain to deeds of trust where a third party, called a trustee, handles the entire process in a matter of two to four months after a borrower has defaulted and stopped making payments. Once the property passes through either the judicial or non-judicial phase, it is then ready to be sold at auction to the highest bidder.


Post Foreclosure Stage

Lastly, at the post-foreclosure stage, the lender has already taken control of the property. The home is then in the possession of the lender's REO (Real Estate Owned) department, or in the hands of a new owner or investor who purchased the property at auction. At this point, you can contact The Kiper Team for a complete list of REO property in the area you are looking in. The Kiper Team can set you up on an automatic search for all new REO Properties.

A Key decision to make is where to enter into the foreclosure process. It is critical that you identify one of the three aforementioned stages and become an expert in that particular process. This will help you achieve the most success at becoming a long-term investor in distressed properties.

We hope this information has been helpful to you as you go through the process of searching for a new home or investment. As always, we are here to answer any questions you may have in this ever-changing market. For more information or for assistance in locating a property call.

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