When you get behind on your mortgage payments, in California, the lender will file a notice of default. After this, it takes a few months for the auction notice to go out. At this point, some owners may list the property for sale. Many owners are in denial about what’s happening to them, however, and/or want to try to try to save their property, get loans from their family, take out a second or try other measures. I’m sure that there are realtors who go after the properties in the notice of default stage, too. But there’s a short window of time (4-5 months) between when the notice of default is filed and the auction notice is filed and the seller may not be able to sell his house in time.
A seller may not have equity for several reasons. We all know why this could be. Also, the property may be mortgaged to the hilt, and/or it may have IRS, property tax, mechanics’ or judgment liens, filed on it. For the owner in this situation, he may be able to get out from under with a short sale, if the lender approves. But a preforeclosure investor will stay away from anyone with their equity swallowed up by encumbrances. The property will then be put on the auction block, or if no one bids on it, becomes a REO.
There’s so much hype about foreclosure auctions and buying REO because people make a lot of money hawking their seminars and books on the subject. If you’re interested in finding out more about the preforeclosure process, you can read a book by Thomas Lucier. I can’t recall the name. It’s very thorough, does not promise instant riches, and informs the reader of all the hard work required for this type of investing.
