Understanding the Different Types of Foreclosures
By Diane Allen

Foreclosure is the process where,after a buyer has failed to make the payments as agreed, the buyer is then served with a notice of default, After several months (2 to 4), the borrower is evicted and their home is placed for sale by either the conventional lender (the mortgage bank or mortgage broker), or by HUD (for FHA loans), or by the VA (for VA loans).

Now you know what a foreclosure is, but are you still wondering why some are called HUD homes, and some are auctioned off and still others are sold through a real estate agent just like any other home for sale, but at a reduced priced.

FAQ About Foreclosures

Q.What does HUD stand for?
A.Department of Housing & Urban Development

Q.What is an FHA loan?
A.The Federal Housing Administration (FHA) is a part of HUD--the part that provides federal mortgage insurance.

Q.What if a house bought with an FHA loan is Foreclosed on?
A.If a foreclosed home was purchased with a loan insured by the FHA, the lender can file a claim for the balance due on the mortgage. FHA pays the lender's claim, then transfers ownership of the property to HUD, which sells the home.

Q.What is a VA loan?
A.A mortgage made by an approved lender and guaranteed by the Department of Veterans Affairs, often with a low down payment.

Q.What if a house bought with a VA loan is Foreclosed on?
A.the bank now owns the property. Here's where the VA Guarantee kicks in: the bank will be paid in full by the VA (that's the guarantee), and now the VA owns the property and, like banks, they are not in the Property Management business. Therefore, they need to sell the property and get it off the books.

Q.What is a Conventional Loan?
A.A mortgage neither insured by the FHA nor guaranteed by the VA. Usually a 30 year fixed rate mortgage, but their are variations to that.

Q.What if a house bought with a Conventional loan is Foreclosed on?
A.Once the lender has completed the foreclosure process and gone to auction, if no one bids on the property, or the lender has the highest bid, then the property becomes Real Estate Owned or REO. These properties are usually available for purchase and will usually be listed for sale with a real estate agent or the lenders in house company. Once listed, this property becomes a fairly normal transaction just like any other home for sale.

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