What is a Foreclosure?
The vast majority of foreclosures in Arizona occur through a "Trustee Sale", which is a non-judicial legal process. When a borrower is in default (behind on payments), the lender (bank) issues a "Notice of Default" to the trustee who in turn issues a "Notice of Trustee Sale" to the borrower (homeowner). The foreclosure process starts when the Notice of Trustee Sale is recorded. This notice describes the property being sold, the amount of the outstanding loan and the date, time and location of the auction. By law, the date of the auction must be at least 90 days out. Until the property is sold at auction, the property owner has the right to sell, refinance, or pay the past due debt and bring his account back into good standing with the lender. If the property owner is unable to sell, refinance, or bring his account current, the trustee can proceed with the auction.
Foreclosure sales begin with a minimum bid that usually includes the loan balance, accrued interest, attorney's fees and any other costs associated with the foreclosure process. The successful bidder receives the property in "as is" condition. Since the bidder is usually not able to inspect the property prior to auction, the bidder is taking a risk that the property may not be in good condition. The property could have significant damage, there could be other liens against the property or there could still be someone living in the property. Before bidding at a trustee sale, one should really do their homework.
Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions actually result in a successful sale. If there is no successful bidder, the property "reverts" to the bank. The lender takes title and becomes the new owner of the property. When the lender lists these properties for sale, they are commonly referred to as "bank owned", "lender owned" or "REO" (real estate owned) properties.
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