Foreclosure Overview

What is Foreclosure?

Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens. The foreclosure process can end one of four ways:

1. The borrower/owner reinstates the loan by paying off the default amount to during a grace period determined by state law. This grace period is also known as pre-foreclosure.

2. The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.

3. A third party buys the property at a public auction at the end of the pre-foreclosure period.

4. The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction. These are also known as bank-owned or Reo Properties(Real Estate Owned by the lender).

This process allows for three opportunities for finding bargains on foreclosure homes.

Pre-Foreclosure (NOD, LIS):
Buying a property in pre-foreclosure involves approaching the borrower/owner and offering to buy the property outright. The borrower/owner can walk away with something to show for any equity in the property and avoid a bad mark on his or her credit history. The buyer has time to research the title and condition of the property and can realize discounts of 20-40 percent below market value.

Auction (NTS, NFS):
If the loan is not reinstated by the end of the pre-foreclosure period, potential buyers can bid on the property at a public auction. Buyers often are required to pay in cash at the auction and may not have much time to research the title and condition of the property beforehand; however, a public auction often offers some of the best bargains and avoids the unpredictability of dealing directly with the borrower/owner.

Bank-owned (REO):
If the lender takes ownership of the property, either through an agreement with the owner during pre-foreclosure or at the public auction, the lender will usually want to re-sell the property to recover the unpaid loan amount. The lender will then typically clear the title and perform needed maintenance and repair; however, the potential bargain for these REO Homes typically less than a pre-foreclosure or auction property. Bank Foreclosures can become Government Foreclosures if the loan is backed by a government agency such as the Department of Housing and Urban Development (HUD) or the Department of Veterans Affairs (VA). In that case the government agency would be responsible for selling the property.

Before you buy
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Both court and out-of-court foreclosure proceedings are available in Georgia. An out-of-court foreclosure in Georgia can be completed in less than two months.

Pre-foreclosure Period
A court foreclosure occurs when there are title problems or the mortgage or trust deed lacks a clause permitting an out-of-court proceeding. The process begins when a lender files a petition describing the situation, the property, and the default amount. The borrower then receives a 30-day written notice in which the default must be paid to the court. If the default is not resolved, a foreclosure sale is scheduled.

The out-of-court process is more common, as most mortgages and trust deeds contain a clause giving a lender the power to sell the property outside of the court system. The lender starts the foreclosure process by scheduling a foreclosure sale. Georgia does not require lenders to warn the borrower before starting the foreclosure process, although the mortgage or deed of trust might demand this.

If the mortgage or deed of trust allows, the borrower can stop the foreclosure by paying off the default amount plus applicable costs, but Georgia state law does not automatically give this reinstatement right to the borrower. The borrower can always stop the foreclosure by paying the total loan balance.

Notice of Sale / Auction
A notice of sale is published once a week for the four weeks before the sale. The notice is also sent to the borrower a minimum of 15 days before the sale date. The notice must include the date, time, and location of the sale; a description of the property; mortgage information; and the lender and borrower names.

The foreclosure sale is at the county courthouse on the first Tuesday of the month between 10:00 a.m. and 4:00 p.m. The winning bidder, if other than the lender, is required to pay the full bid amount to the person conducting the sale immediately following the sale. If a foreclosure sale is cancelled, the foreclosure process starts over again.

After court-ordered foreclosure sales, a confirmation hearing is scheduled and the borrower is notified within five days of the hearing. If the sale price of the property is at least market value of the property, the court confirms the sale. If not, the court may order a new sale.

There is no right of redemption for the borrower following a foreclosure sale in Georgia. All information listed above is not intended as professional legal advice.