Stages of foreclosure
The foreclosure process begins when a financial distressed homeowner fails to make a loan payment and is served with a summons from his or her creditors. After service, papers will be filed with the county clerk's office and be made a matter of public record. This notice is usually known as Lis Pendens, which is Latin for "pending legal action." At this point, any attempts by the homeowner to borrow from public credit sources will be met with a negative response. On completion of the publication process, the foreclosure action will be permitted to proceed and the owners have a limited amount of time to pay up, sell, or make other deals with creditors. If none of these actions are taken, a foreclosure sale will take place. If no one bids the amount owed, the property reverts to the lender and becomes an REO (real estate owned) property held in inventory by the lender. Experienced foreclosure investors may work in all of these various stages, but the possibility of making a transaction with the homeowner is no longer possible after the property is an REO.
Real estate owned or REO is a class of property owned by a lender, typically a bank, after an unsuccessful sale at a foreclosure auction. This is common because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank negative equity: the minimum bid in most foreclosure auctions equals the outstanding loan amount, the accrued interest and any costs associated with the foreclosure sale including attorneys' fees.
(Notes) What's & REO: After an unsuccessful auction, the bank will go through the process of trying to sell the property on its own. It will remove some of the liens and other expenses on the home and try to resell it to the public, either through future auctions or direct marketing through a Realtor. Generally speaking, bank REO properties are in poor shape in terms of repairs and maintenance; however, real estate investors will often go after these properties as banks are not in the business of owning homes and so, in some cases, the low price can more than compensate for the condition of the property.