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Judicial Foreclosure & Nonjudicial Foreclosure | Real Estate Exam - YouTube
Channel: The Real Estate Classroom
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[Music]
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hey everyone my name is paul vichesky
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and welcome to the real estate classroom
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youtube channel
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in this video we're going to discuss two
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concepts you have to know for your exam
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judicial foreclosure and non-judicial
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foreclosure
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we're going to discuss both and what the
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differences
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are things you need to know for your
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real estate exam coming up in this video
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so in this video we're going to discuss
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two concepts that uh basically you have
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to know judicial foreclosure in
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non-judicial foreclosure and i have your
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key terms
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that will be discussed in this video on
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your screen there
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what's the definition of each well a
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judicial foreclosure is a
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judicial process that requires the
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lender now the lender is the mortgagee
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to file suit in court in front of a
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judge to start the foreclosure process
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against the borrower who is the
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mortgagor
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now a non-judicial foreclosure allows a
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foreclosure to take place
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because of default of the borrower by
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what's called
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power of sale it's an actual sale that
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goes on we call it a trustee sale
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and that is conducted by the trustee
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because the borrower known as the
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trustor
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a lot of legal terms here defaulted on
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their payments
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the difference between the two judicial
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foreclosure is an actual
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judicial process a suit has to be filed
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in court
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and a non-judicial foreclosure there is
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no judicial action there is no suit
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that's filed
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it just directly goes to a
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a trustee sale now how do we know
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which is gonna apply here if a if a bank
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is dealing with a borrower who's
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defaulted on payments which one do they
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do well that's a great question
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and it has to do with what type of state
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it is
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and we talked about this in a previous
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video we talked about it in the
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promissory note
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and and mortgage video and also the d to
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trust video
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i'm going to leave a link in the upper
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right hand corner if you want to check
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those two out
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but um mortgage states
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meaning they use an instrument called a
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mortgage as collateral for the loan
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in those states like iowa they would use
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the judicial foreclosure
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in states like nebraska where i'm at
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we're adida trust state
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and so adida trust state is going to use
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a non-judicial
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foreclosure so let's go ahead and talk
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about each specifically
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judicial foreclosure it's a judicial
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process that requires the lender which
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is the
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mortgagee to file suit in court to start
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the foreclosure process against the
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borrower who's the mortgagor
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again if you watch that previous video
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that i've done on
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promissory notes and mortgages it'll
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help explain this particular part of
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this video
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now i've listed eight things that you
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really need to know about judicial
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foreclosure number one
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it's used in mortgage states number two
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foreclosure can take up to months or
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years to foreclose the
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the foreclosure process uh is str
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it's strict and it's not quick
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because i think we all know that
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anything that goes to court is not a
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fast process anyways but
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there are some mechanisms in place that
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allow
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the borrower or the mortgagor to extend
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the foreclosure process
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number three borrow the borrower who's
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the mortgagor
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i know i keep killing this dead horse in
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every video with these terms but you
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have to know what they are it's sort of
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like teaching kindergarten here
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the borrower who's the mortgagor they
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may have a right of redemption
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we call that equitable we call it a
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right of redemption or sometimes called
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an equitable
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redemption and so even after foreclosure
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happens
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in some states that borrower may have
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three months six months or a year to
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actually
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redeem the property that is state by
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state
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and very state specific it's not
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something specifically you have to know
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uh the time frames for your licensing
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exam however you do need to know it
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know that uh the borrower may have the
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right of redemption
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number four a um a petition
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which is foreclosure action is going to
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be filed in court against the debtor
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which is the borrower
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and this is important so
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not only is the borrower going to get
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served
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that that petition so are all the junior
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lien holders
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so maybe it's the mortgage the first
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mortgage
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that's filing the foreclosure action but
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maybe there's a second mortgage
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and then there's a a mechanics lien
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and those type of things all the per
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people or all the entities that have
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that have um liens against that property
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are going to get
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noticed they're actually going to be
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called as defendants
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actually in the lawsuit number five
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junior lien holders may redeem the
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senior lien holder or allow the
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foreclosure to happen and file what's
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called
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surplus money action so
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the mortgage company that's in first
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place they have the right to foreclose
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then we have the second
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mortgage for example in our scenario
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here that
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the second mortgage company has two
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options
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they can pay off the first mortgage and
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then they're in first place and then
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they have the right to
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uh pursue the foreclosure or
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they can simply allow the first mortgage
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company
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to go ahead and foreclose and then
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they're going to file
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what's called the surplus money action
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they're basically going to say hey we're
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owed money too and if there's anything
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left over
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we want our share of it so the junior
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lien holders have
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that right to do either one and a lot of
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it quite frankly has to do with how much
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equity there is
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um i can remember back in 2010 and 11
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when you know the
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the mortgage crisis happened many times
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the second company just kind of said
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we're not going to get any money anyway
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so we're not going to mess with it
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you know but if there is equity in the
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house it may be something that the
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second
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mortgage holders can at least look at
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number six
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the process once the courts have
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determined that it's legitimate and they
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authorize the foreclosure sale to happen
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it's going to go to what's called a
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sheriff's sale
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or a sheriff's auction and it will be an
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auction sometimes at the courthouse
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sometimes it's at the property but it's
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the sheriff's department that actually
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does it
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all right and then also number seven
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remember there are certain
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liens against the property that don't go
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away
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even if there's a foreclosure tax liens
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property tax liens never go away
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irs tax liens don't go away special
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assessments
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don't go away so anybody who shows up to
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that auction
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in addition to the lender
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they may actually if they buy the
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property they need to do their research
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and make sure
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what's on that title and do a title
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search because if they buy the property
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at that auction
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those liens are going to be attached to
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the property all right
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sheriff's deed that is the type of deed
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that whoever purchased that property
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is going to receive and remember a
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sheriff's deed doesn't have any
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indemnification or any warranties
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we talked about deeds in in a previous
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video
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all right let's talk about a
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non-judicial foreclosure
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non-judicial foreclosure allows a
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foreclosure to happen
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by what's called a power of sale by a
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trustee
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when the borrower known as the trustor
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has defaulted on their payments the key
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here is
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court action has not or is not required
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and we talked about this in that
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previous video i discussed
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under um deeds of trust it's a video
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called
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deeds of trust that i did i highly
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recommend that you watch that one
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as well for for this particular part of
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this video
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remember in a deed of trust state
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there are three parties in a
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relationship
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in a mortgage state there are two
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there's the mortgagor and the mortgagee
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in a non-judicial state foreclosure
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state
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that is a deed of trust state there are
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three there is the trust
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or who's the borrower there's the
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trustee
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and the beneficiary and remember we
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discussed in that previous video the
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trust or
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they transfer title to the trustee who's
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a disinterested third party that holds
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on
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to title legal title for the beneficiary
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who's the lender until the note is paid
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off
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okay so if the borrower defaults the
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beneficiary who's the
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uh who's the bank is going to notify the
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trustee who's holding legal
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legal title to go ahead and do the
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foreclosure
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so the trustee is going to hold a
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trustee
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sale all right that's again
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sale actually happens right on the
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stairs of the courthouse all right
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so there are about eight things i want
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you to know about a non-judicial
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foreclosure number one it's used in deed
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of trust states number two it's a quick
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foreclosure
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as soon as the the lender who's the
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beneficiary
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notifies the trustee who has that legal
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title
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to do the trustee sale um it could be
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just a matter of
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of weeks you know eight to 12 weeks
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before it's all said and done
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unlike the for judicial foreclosure work
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could take literally years
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number three it allows what's called a
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power of sale to foreclose and that's
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done by the trustee
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number four trustee carries out the
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trustee
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sale once the beneficiary has given the
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proper notices
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to all the lien holders of record on
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that property
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that's important there has to be
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integrity in the process so what's going
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to happen
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is the lender is going to send out
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they're going to do a title search is
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actually what they're going to do
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they're going to send out and sometimes
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they hire the trustee to do this but
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the the lender is still repo responsible
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to ensure that
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notice is given to all the lien holders
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that hey we're moving forward with
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any with a trustee sale so if you have
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an interest in the property you might
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want to speak up now type deal
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but once all the notices have been
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delivered
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and the notice periods have been
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fulfilled and again the notice periods
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can be anywhere from 30 to 90 to 120
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days that is very state specific
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but once the proper notices have been
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given and and the
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the notice periods have been seasoned
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then the trustee sale
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can be scheduled and go on
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number five opening bid is usually the
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amount that's owed to the beneficiary
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let me explain how a trustee sale
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happens
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it's scheduled and it happens typically
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at the courthouse stairs
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the trustee who has legal title is going
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to show
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up and they're going to be the initial
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bid they're going to say
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we are owed thousand dollars that's the
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opening bid
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now anybody and everybody can show up to
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the sale and
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they can start bidding on it the opening
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bid is going to be a hundred and five
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thousand
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um depending on the the property the
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property may be valued at 200.
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the trustee is only going to bid 105.
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now
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other people are going to bid to try to
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get that property
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and maybe the final sale is 150.
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so the trustee gets their hundred and
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five thousand
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and now the uh person who
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is the successful bidder they now own a
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property that's worth 200 but they only
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paid 150 that's how those trustee sales
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works
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but if you're the successful bidder in
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that trustee sale
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look at number eight those tax liens
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special assessments irs liens etc
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they don't get removed so
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anybody that's going to show up at that
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trustee sale needs to make sure that
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they
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search the title to see what's on there
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because that bidder
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they win they now own the property and
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they're going to be responsible for
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paying those tax liens and special
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assessments
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all right number number six is
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if the successful bidder is the trustee
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the trustee
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all right so let's say that no one shows
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up and the trustee
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has the opening and only bid of a
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hundred and five thousand
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then what's gonna happen at that point
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is it's gonna get sent off
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and be sold as a bank foreclosure i'll
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do a different video on that later on
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down the road
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um but the successful bidder the person
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in our example that paid 150
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000 typically they're going to receive
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what's called a trustee's deed
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that can vary from state to state as
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well but typically that's what it's
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called
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number seven deed in lieu of foreclosure
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this was very popular back
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in the mortgage crisis days 2008 9 10 11
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where the foreclosure process started
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the trustee was sending out the notices
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and they had a a sale scheduled a
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trustee sale
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scheduled a lot of times what the bank
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would do
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is just simply say transfer just deed
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the property over to us
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and we're done so that's what the
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borrower would do the borrower would
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simply
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they would sign what's called a deed in
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lieu of foreclosure
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that says we voluntarily give all of our
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interest back to the bank or back to the
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trustee
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that's what they did it's called the
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deed in lieu of foreclosure
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and there was actually some incentive to
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do that because
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on people's credit reports and
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i did a a a video on short sales as well
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but on your credit report a foreclosure
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is the worst thing that can be there
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that can actually bar you from buying
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property up to 10 years depending on the
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lender
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a deed in lieu of foreclosure is not
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quite as bad as a
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foreclosure and a short sale is actually
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better than a deed in lieu of
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foreclosure and a foreclosure so
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uh and something you need to know about
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at least you're familiar with
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all right so before i let you go i
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understand i threw a lot of terminology
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at you and i'm hoping at this by this
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point you have a pretty good
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understanding and a grasp of of those
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terms that we've been talking about
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if you've been watching my previous
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videos but i did mention some previous
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videos
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in this video that i highly recommend
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that you watch
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here is one of them i highly recommend
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that you watch it's right here
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and then number two is if you have not
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subscribed to the channel please do so
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click the little circle to my left
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and share this with somebody that you
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know that may be studying as well for
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their real estate exam and don't forget
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comments
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questions down below i'll see you in the
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next video
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