What is a foreclosure property? What is an REO? (Continued ...)

The common type of foreclosure in California is a non-judicial foreclosure, which begins when a borrower defaults on a loan. These foreclosures must follow a step-by-step legal process:

1. Once the lender decides to begin the foreclosure process, in some instances they are required to contact the homeowner at least 30 days before filing a notice of default, to explore options for avoiding foreclosure. (This applies to loans secured by owner-occupied residences made from 2003 to 2007; certain exemptions apply.)


2. The lender records a Notice of Default (NOD) with the county recorder. The lender (or "beneficiary") notifies the homeowners/borrowers that they are in default and directs the Trustee (the entity that conducts the foreclosure process) to start foreclosure proceedings.


3. If the homeowners are not able to work out a solution with the lender, the Trustee schedules the trustee's sale (or auction) and records a Notice of Trustee's Sale.


4. The property is sold to the highest bidder at the Trustee's sale (typically an auction at the courthouse steps). If there are no bidders or no bids that the lender will accept, the property goes back to the foreclosing lender and becomes an REO (Real Estate Owned by the bank).

These REO properties are then sold through the MLS much like any other home listed for sale. See also "How do people buy foreclosures and short sales?"