Foreclosure Process: The 3 Stages Real Estate Investors Need To Know

If you’re investing in real estate properties, then you have likely looked into the foreclosure process. The foreclosure market is teeming with incredible deals, and knowing the right stage to buy at will help you get make the most of your investment. Depending on your local economy, each stage will offer a different type of potential for your investment portfolio.

The Pre-foreclosure Stage

Pre-foreclosures are known as short sales in the real estate world. This is likely the most advantageous stage of the foreclosure process of investors because lenders are willing to work out better deals. Pre-foreclosures occur after the borrower has missed mortgage payments, but before the home goes to an auction sale. There are actually two stages of a short sale. The first is when the home owner defaults on his mortgage, or is more than 30 days late on his payment. The second part is when the home owner actually receives a legal letter known as a Notice of Default.

As a property investor, you want to find sellers who have actually received a Notice of Default on their mortgage because they are more than 3 months behind on payments and will likely work with you on a purchase. Before they receive this notice, sellers have ample opportunity to catch up their payments and cure their loans.

The Foreclosure Stage

The foreclosure stage begins after the home owner receives a notice of default and the lender takes legal action against them. They will be evicted from the home and the lender will seize the property. When this happens, the lender must place the home on the foreclosure auction. In some states this is known as a trustee sale.

Trustee sales are great because they give you a lot of bargaining power. Foreclosure notices are placed in the newspaper, allowing you plenty of time to research properties before you decide to bid on a house. Once you find a property you want to bid on, you can go the auction and place your bid.

The foreclosure auction does have many pitfalls, but if you do your research and understand the market, you can score really great homes in good neighborhoods. Many real estate investors use bidding services that will bid on homes for them. If you choose this route, all you need to provide is your requirements for a home and the bidding service will do the research for you.

The Post-foreclosure stage

After a home goes through the short sale and foreclosure auction stage, it ends up as a post-foreclosure property. This is known as a bank owned property or real estate owned REO. These homes end up back on the original lenders books as a non-performing asset. This essentially means they bank owns the home again, but isn’t making any money on it.

At this point the lender has spent a good deal of money going through foreclosure and they may actually try to recover fees and monies lost during foreclosure by taking them onto the sales price. At this stage, the home is selling for the highest price in the entire process.

One advantage to purchasing REO is that banks are highly motivated to get the property off their books. They are likely more willing to negotiate at this stage as the property is costing them money.

Foreclosure Defense: Process Servers Allegedly Filing False Affidavits

Recent reports indicate that approximately 462,339 foreclosure cases were pending in Florida as of June 30.

Following foreclosure moratoriums by Ally Financial, Bank of America, JP Morgan Chase, and PNC Bank, the settlement of deceptive marketing charges by Wells Fargo, and the Attorney General's investigation into faulty foreclosure practices at the Florida Default Law Group, the Law Offices of David J. Stern, PA; the Law Offices of Marshall C. Watson, PA; and Shapiro & Fishman, LLP, investigators have turned up a new problem.

Process servers are now alleged to have filed false affidavits in support of personal service in foreclosure matters.

Foreclosure defense attorneys claim to have documented a number of cases where process servers filed false affidavits. While investigating the law firms that employed "robo-signers," state investigators are also closely examining service of process in a number of cases.

Recent foreclosure defense cases allege homeowners never received a court summons even though they still occupied their home, while others allege that process servers did not take the required steps to locate them or filed false affidavits about whom or when they delivered papers.

According to the lawsuits, some process servers violated rules related to the personal delivery of legal papers. Like robo-signing foreclosure documents without reviewing them for accuracy, a number of homeowners are now alleging they were never served with foreclosure papers.

Once rare, "bad service" of process has become more common as lenders and their attorneys speed thousands of foreclosure cases through "rocket dockets" that are designed to clear an ever growing backlog.

"With the foreclosure debacle, it's become more complicated," says Carlos J. Reyes, a foreclosure defense attorney with the Reyes Law Group in Fort Lauderdale. "For the sake of expediency, process servers are being rushed. As they are paid by the piece, they have an interest in earning a higher income."

Homeowners involved in foreclosures are required to receive a summons and complaint personally delivered by a process server. Repeated attempts at personal service are required before court permission can be obtained to publish a legal notice in the alternative.

Some process servers have allegedly cut corners. One recently claimed she could not find a homeowner facing foreclosure on a second home, despite conducting extensive record checks. This held true even though the foreclosure complaint clearly provided a primary home address in Connecticut.

Lenders and attorneys typically contract their summons delivery work to large process serving firms, who sub-contract to private independent servers. In her deposition to state investigators, former Stern paralegal Tammie Lou Kapusta, testified that summons serving procedures were a "complete mess," with homeowners routinely complaining they never received papers.

She and another former employee, Kelly Scott, said their managers told them to move forward with the foreclosures anyway.

Investigators also questioned staff at Stern's firm regarding billing practices that involved serving multiple parties at an address and billing for each one.

"Good service of process is crucial", Reyes said. He has heard of homeowners losing their home because they never received a summons and missed filing dates or court hearings.

While a court summons must be accepted by an adult, state law does not require it to be served upon the property owner. No one has to sign, verifying receipt, "which makes it easier to say the person was served, when they weren't," Reyes said.

Laws governing the service of process vary from state to state. In Florida, there is no statewide licensing or regulating body for process servers, and rules vary greatly among the 20 judicial circuits.

Among the largest with operations in ten states is Tampa-based ProVest. Although ownership interest by the law firms has been denied, they maintain support staff at the Law Offices of David J. Stern and Shapiro & Fishman in Boca Raton. Marshall C. Watson also uses ProVest.

While ProVest declined to comment on specific cases, company president James Ward stated they "utilize properly licensed or authorized independent contractors" and require them to "fully comply with state and local guidelines."

To learn more about the mortgage foreclosure crisis or to file a complaint with the Attorney General's Office, visit their website at http://www.myfloridalegal.com or call (866) 9-NO-SCAM (866-966-7226).

Source: The Credit Report with Bill Lewis – Highlands Today, an edition of the Tampa Tribune (Media General Group) – http://www2.highlandstoday.com/content/2010/nov/07/foreclosure-defense-process-servers- allegedly-fili /