In New York State, the foreclosure process can take a very long time, frequently in excess of five years, as there are a number of moving parts involved in the process which can each take significant time to resolve. For the purposes of this discussion, we’ll keep things simple.

Foreclosures are the result of a borrower defaulting on their home loan. If a homeowner fails to make payments toward their mortgage for three months and the borrower’s and lender’s efforts to remedy the situation fail, a lis pendens (Latin for “suit pending”) is filed. A lis pendens in this context serves as public notice that a borrower has not paid their mortgage for at least three consecutive months. The matter is assigned to an attorney who represents the lender, and this attorney begins the foreclosure proceedings.

During this process, hearings and foreclosure conferences are held. A “referee” is assigned to conduct an auction for the property in question. Ultimately, several years down the line, the property becomes available to the public at auction. This auction is typically either held online or on the steps of the local courthouse, and it will be advertised at least 30 days in advance to give potential bidders notice of the impending auction. The bank sets an “upset price”, the lowest acceptable bid for which the property will be sold at auction. This price is intended to recover the outstanding balance of the unpaid mortgage. So long as this reserve price is met, the property goes to the highest bidder.

In the event that no bidder is willing to offer the upset price, the bank proceeds to buy the property itself, and the property becomes REO – Real Estate Owned. The property is then listed for sale by a specialist REO real estate broker who lists the property on the open market and attempts to get market value. REO properties are often sold at somewhat of a discount because it is not in the bank’s best interest to retain the property for very long, with the caveat that these properties are most often sold “as is” and may be in need of repair work at the time of purchase.

The above is a brief overview of how foreclosures happen and how they become available to the buying public, but more detailed information for how foreclosures work in New York is available here.

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