Lesson 1 - The Process:

I said foreclosure was a process with three stages and I said the stages were pre-foreclosure, foreclosure and post-foreclosure. As you get into this business you will hear people actually lump the pre-foreclosure stage in with the foreclosure stage.

Don’t let yourself fall into that bad habit. The bank doesn’t and the bank never will. The process is actually structured by the foreclosure laws in your state’s statutes or codes. Before you take your first step, READ THEM!

After you have read them, get very familiar with them. These are the laws that will guide your activities in your state. For example, in California I couldn’t call myself a Foreclosure Consultant unless I met the conditions of that part of the Code that dealt with Foreclosure Consultants.

However, here in Nevada, the statutes don’t even address foreclosure consultants. When I queried the Department of Real Estate on whether I could, or couldn’t, use that as a business title, they said that since no law says I can’t, I can. It was that simple.

I tell you this because had I not read the law for myself, I would simply have assumed I couldn’t be a Foreclosure Consultant because of my California experience. Always, and I mean always, know your state’s law.

By the way, this gives you an advantage over 95% of your competition. They simply started in the field and didn’t bother to do any research.

Here is how foreclosure actually is structured. Before the lender can even consider foreclosing, the home owner must be late with their monthly payment. Lenders very rarely begin the foreclosure process with people who are only one payment behind.

They understand that a person could have been sick, missed some work time or had some sort of emergency among any number of reasons. They will simply write a letter reminding the home owner they missed their payment.

The letter is a gentle reminder to send in not only the payment but an additional amount called a late fee. If the payment was $1000, the bank may add $100 as a late fee making the missed payment $1100. This is legal for them to do as it is in the loan agreement.

Let’s say the home owner misses two payments. The lender will not only send a letter but make a phone call. They will want to know if something is wrong.

When the homeowner misses the third payment, the letter is no longer a gentle reminder. It will threaten foreclosure and/or other legal action. The phone call will be a more stiff reminder of the missed payments.

Let’s say this particular lender’s policy is to begin the foreclosure process on the date the fourth payment was due and had not been received. To date, the homeowner was in pre-foreclosure. This means the homeowner was behind in payments but no formal legal action, only requests and threatening letters, was in process against him/her.

This lender decides to file the formal Notices to begin the process. The first document filed is the Notice Of Default (NOD). This is the document that tells the homeowner the amount it would take to bring the note current and the date by which these funds are due at the lender’s office.

Generally speaking, the NOD time period is 90 days. If the lender does not receive the funds, they will file a document called a Notice Of Intent To Sell (NOITS). This document tells the homeowner they have until such and such a date to bring the note current and if they don’t, the house will go to public auction on such and such a date.

The NOITS time frame is generally 21 days with the sale date set 10 days after this 3 weeks. According to the law, the lender must run the NOITS for three consecutive weeks in a newspaper of general circulation in your county. I say generally because it may be different in your jurisdiction. This is another reason to know your state’s laws.

If you noticed, the foreclosure stage consisted of two time frames, the NOD and NOITS. One was 90 days and the other 31 days. Should the homeowner let these stages pass the home will be sold on the County Courthouse steps at public auction.

Public auction is exactly that, public. That means anybody can come and bid on the house. If they are the highest bidder, they own the home. For discussion sake, let’s say no one bids and the bank takes it back.

It is now officially called Real Estate Owned (REO). Become familiar with that term because if you go full tilt in this business, you will do a lot of REOs.

Starting with the next chapter, I will dissect each stage and give you the how-tos to invest in that stage plus the pros and cons as I see them.

One last word before I leave this chapter. The above information is the process in those states where Trust Deeds are used in lieu of mortgages. Mortgage based states almost always use a judicial form of foreclosure. This means the lender has to go to court to start the process which can run up to one year. You can make money but it may take longer.

In Trust Deed states, which are more prevalent than mortgage states, the process is called non-judicial foreclosure and runs for up to 121 days without the lender ever setting foot in a court room. This is yet one more reason for you to know the laws in your state.

Even if you live in a mortgage state, you can make a ton of money in either the pre-foreclosurestage or the REO stage. Remember, just because you live in a mortgage state doesn’t mean the door is shut on your investing career.

Go To: Part 2 - Relevant Terms