If your lender has failed to answer or accept your request for a loan work-out or other loss mitigation efforts, and you cannot reinstate, your home may be sold at auction. At this point, the only action that may stop the sale is to file bankruptcy (Step 8). See section entitled Bankruptcy for further details.
Before the auction takes place and without your knowledge, the lender has most likely hired someone to do a Brokers Price Opinion (BPO) on your property. The BPO will assess the value of your property. The lender uses this value to determine how much the bid should open for at auction. Whatever the beginning bid amount is, the lender’s attorney or agent will start the bidding at that price. At this point, one of two things will happen, either a third party will purchase the property at the sale or the lender will be forced to buy it back.
Third Party Purchaser
If a third party purchaser buys your home at foreclosure, he must complete the purchase by attending the closing. The closing will not take place until the court has deemed that the foreclosure was valid. The court will issue a final ratification order, at which point the third party purchaser must proceed to closing. If the third party purchaser fails to close timely, the homeowner does not get the property back, instead, the lender will reinstitute the foreclosure sale and the third party purchaser will have to deal with the legal consequences of failing to settle.
Lender Buy Back
If the lender is forced to buy the house back at auction, the property is known as Real Estate Owned (REO). The lender is not particularly happy when this happens because now it is stuck with owning real estate. Once a property goes REO, the lender will hire a Real Estate Agent to sell the house on the open market. There are some lenders that may consider selling the house back to the homeowner, but this is rarely successful. The problem is, if a homeowner is in foreclosure due to a Default, the homeowner, more than likely, cannot qualify for a home loan because of the recent delinquenciy and the need for a down payment. This amount is probably out of reach.
Step 8: The Auction Date