1. Foreclosure is a process that allows a lender to recover the amount owed....
on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. It begins when a borrower/owner defaults on loan
payments and the lender files a public default notice on a lis pendens (Latin for "lawsuit pending".)
Ultimately, the foreclosure process can end one of four ways:
· The borrower/owner pays off the default amount to reinstate the loan during a grace period known as pre-foreclosure
· The borrower/owner sells the property to a third party during pre-foreclosure, allowing the
borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history
· A third party buys the property at a public auction at the end of the pre-foreclosure period.
· The lender takes ownership of the property, usually with the intent to re-sell. The lender can take ownership through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the
public auction.
2. There are different stages in the foreclosure process, and each stage offers unique advantages and disadvantages for the buyer. For instance, some buyers prefer buying bank-owned properties because they're uncomfortable dealing with distressed homeowners.
3. Contact a Real Estate Agent
If you're a first-time homebuyer and you've never purchased a home, let alone a foreclosure property, a good real estate agent can be a helpful resource and guide you through the process of buying a
foreclosure and drawing up a purchase agreement. Make sure they know your priorities.
The easiest way to find foreclosures is to subscribe to online listing services or work with an agent or lender. You can also look for notices of defaults and auctions in public records and local newspapers.
5. Check the Property Liens
A lien is a legal claim on a property by a lender or other entity that is owed money by the owner of the property. In addition to the outstanding mortgage balance, buyers need to be aware of other liens, which can drive up the purchase price. Examples include outstanding property taxes and unpaid repairs or remodeling done by a contractor. .
6. Do the Math
Calculate how much you'll need to sink into the property, outside of mortgage and tax payments. Necessary renovations, upgrades and other expenses can pile up and eat into your profit margin.
Use the return on investment calculator to determine your potential IRR (internal rate of return) on a property..
7. Research the Local State Foreclosure Laws
California and Texas, for example, follow non-judicial foreclosure process, which means that lenders are not required to go to court or file a lawsuit to repossess a home. Other states like New York and Florida require the lender to sue the borrower and get a court order to sell the property.
Whether you use cash, a home equity line of credit, resources from other investors or mortgage
products, secure the money for your purchase in advance. Sellers only want to work with serious buyers
who are ready to buy quickly. You could miss an opportunity if you don't have your financing in place.
Depending on the property status, the seller will be the owner in default, the trustee (the person or party who is filing the paperwork
to initiate and carry out the foreclosure), or the foreclosing lender.
Usually the offer amount is somewhere below the market value but above the total outstanding liens and estimated repair costs.
If the property is a pre-foreclosure or bank-owned, you could prepare an offer similar to a typical purchase offer, contingent on a full inspection and title search.
SHORT SALE
for those who have a home who want to have their lender SHORT SALE there home!
Pre-Foreclosure Properties
Once you work out a deal with the homeowner, you have to convince the lender to do a short sale.
If all goes well, the owner can walk away with something to show for any equity in the property and avoid a bad mark on his or her credit history,
and you can realize discounts of 20 percent to 40 percent below market value.
Properties to be Auctioned
Before the auction, try working out a last-minute deal with the owner in default. Usually a property is scheduled for auction just a few weeks before the auction occurs, so move quickly if you want to contact the owner.
Auctions can be postponed or canceled anytime, so contact the trustee or attorney to confirm the auction details after you first locate the property and on the day before the property is scheduled for auction.
Bank-Owned Properties
During this stage, a lender now owns the property and sells it to recover the unpaid loan amount. The lender typically clears the title for any buyer. You may not get a steep discount, unless the bank is motivated to sell because of high inventories of REO (Real Estate Owned) properties.
Typically, a lender hands off its list of bank-owned properties to a real estate broker that lists it on the MLS. In these cases, contact the listing agent directly. If the house is not listed, contact the lender and ask for the REO department, bank-owned homes department or asset management department.
Government-Owned Properties
Many homebuyers get government-guaranteed financing. When homes that were bought with loans guaranteed by the Federal Housing Administration (FHA) or Department of Veterans Affairs (VA) go into foreclosure, they are repossessed by the government and then put up for sale by brokers that work for the government. Buyers who are interested in purchasing government-owned foreclosures need to use government-registered brokers to write the purchase agreement.
Many government-owned properties are already listed with a real estate agent. If you can't find contact information for the listing agent, contact the government agency or a local real estate broker who specializes in REOs.
MORE ... SHORT SALES INFORMATION
Facing foreclosure and tempted to stay in your home until the bank pulls it out from under you?
Bad idea..... Don’t do it....
A much more graceful exit is a short sale, an agreement between you and your lender to sell your home for less than you owe. Although there’s no guarantee that your lender will let you avoid foreclosure with a short sale, new government regulations are aimed at encouraging lenders to do so.
Short sales get government incentives
Although short sales are not hassle-free, at least you’ve got the government backing you. The Home Affordable Foreclosure Alternatives (HAFA) program provides financial incentives for lenders and borrowers to avoid foreclosure through short sales or deeds in lieu of foreclosures.
Participation in the HAFA program requires adherence to guidelines—including a standard process and minimum timeframes—that speed the process, says Dallas-based REALTOR® Tom Branch, co-author of Avoiding Foreclosure: The Field Guide to Short Sales. The HAFA program is for homeowners who can’t keep their homes with the help of a loan modification.
Advantages of a short sale
- You can be a homeowner again more quickly with a short sale in your past than with a foreclosure. New Fannie Mae guidelines help you qualify for a new mortgage in as little as two years after a short sale, as opposed to three years or more after a foreclosure.
- You will have more time to make relocation plans and save money than with a deed in lieu. A short sale may take four to 12 months. A deed in lieu of foreclosure arrangement typically requires you vacate your home within 30 to 60 days of signing, according to real estate attorney Lance Churchill.
- You can receive up to $3,000 from your lender for moving expenses at the time of closing of a HAFA short sale or a HAFA deed in lieu of foreclosure. Relocation funds are part of the incentives of HAFA, but not necessarily for other short sale or deed in lieu programs of the lenders.
- You can help your community’s home values. Because the lender often receives a higher amount of the remaining loan balance than it would from the sale of a home after a foreclosure, short sales help support home values in the surrounding community.
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