In the real estate market, among the most popular terms being used by the people in the market is foreclosure. Hearing it the first time might scare you thinking that the previous owner might have done terribly wrong for their property to get foreclosed by a bank. But what actually is a foreclosed property? Zillow has posted an article explaining thoroughly what is foreclosure, when and how it has happened. Read the article below to learn more.
What Is Foreclosure?
Foreclosure is what happens when a homeowner fails to pay the mortgage.
More specifically, it’s a legal process by which the owner forfeits all rights to the property. If the owner can’t pay off the outstanding debt, or sell the property via short sale, the property then goes to a foreclosure auction. If the property doesn’t sell there, the lending institution takes possession of it.
To understand foreclosure, it helps to keep in mind that the word “homeowner” in this case is actually a misnomer. “Borrower” is a more apt term. That’s what a mortgage, or deed of trust, is: a loan agreement for the purchase price of the home, minus the down payment. This document puts a lien on the purchased property, making the loan a “secured loan.”
When a lender loans you money without any collateral (credit card debt, for instance), it can take you to court for failure to pay, but it can be very hard to collect money from you. Lenders often sell this sort of debt to outside collection agencies for pennies on the dollar and write off the loss. This is considered an “unsecured loan.”
A secured loan is different because, although the lender may take a loss on the loan if you default, it will recover a larger portion of the debt by seizing and selling your property.
So what happens in a foreclosure? The specifics can vary according to state law, but we can break it down into five stages.
Stage 1: Missed payments
It all starts when the homeowner — the borrower — fails to make timely mortgage payments. Usually, it’s because they can’t, due to hardships such as unemployment, divorce, death or medical challenges.
If you’re in this tough situation, it’s essential that you talk to your lender as soon as possible. There are several options to help keep you in your home. The foreclosure process costs the lender a lot of money, and they want to avoid it just as much as you do.
Sometimes, a borrower may intentionally stop paying the mortgage because the property might be underwater (in other words, the amount of the mortgage exceeds the value of the home) or because he’s tired of managing the property.
Whatever the reason, the bottom line is that the borrower can’t or won’t meet the terms of the loan.
Stage 2: Public notice
After three to six months of missed payments, the lender records a public notice with the County Recorder’s Office, indicating the borrower has defaulted on the mortgage. In some states, this is called a Notice of Default (NOD); in others, it’s a lis pendens — Latin for “suit pending.”
Depending on state law, the lender might be required to post the notice on the front door of the property. This official notice is intended to make borrowers aware they are in danger of losing all rights to the property and may be evicted from the premises. In other words, they’re in danger of foreclosure.
There are several reasons why properties are foreclosed by lending institutions. But the primary reason is the homeowner has failed to pay his/her mortgage for a couple of months already. There are also various reasons why they failed to pay their obligations until such time they’re given a notice.
Now, what actually happens when your house has been or in the list of foreclosed properties? Is it already time to panic? What will you do next? SFGATE explains what should a homeowner do next the moment their property got foreclosed.
What Happens When Your House Is In Foreclosure?
Foreclosure is a mortgage lender’s legal remedy for enforcing payment on a mortgage loan. Foreclosure allows the lender to sell your mortgaged house and use the sales proceeds to pay off the outstanding balance on the mortgage loan. California statutory law strictly governs foreclosure proceedings.
Foreclosure does not occur unless you have a history of late payments or nonpayment on your mortgage loan. When you miss a certain number of payments or just simply stop paying on your mortgage loan, then you are in default under the mortgage loan. Default triggers the lender’s right to foreclose.
Notice of Default
The first step in the foreclosure process occurs when the lender sends the borrower a notice of default and election to sell. This is a legal document that sets forth the lender’s right to foreclose and sell your house. The notice of default will identify that you are in default and most of the time will identify how much you need to pay to get out of default and stop the foreclosure process.
When the lender initiates foreclosure, the lender will name a trustee to carry out the foreclosure process. The notice of default sent to you by the lender will identify the name, address and telephone number of the trustee. If you have questions or concerns about the foreclosure process, you should contact the trustee to have those questions answered. Most trustees are attorneys, title companies or departments of a bank or mortgage company.
When the lender sends you a notice of default, this triggers a 90-day waiting term during which you have the right to redeem your mortgage. Redeeming your mortgage mean that you pay the full amount that you owe to date on the mortgage, which includes principal, interest, late fees and lender costs incurred so far in the foreclosure process.
After 90 days expire, the trustee can hold a trustee’s sale where the trustee will sell your house to the highest bidder in a public auction. The lender must publish in a local newspaper a notice of the sale, which notice must include the date, time and location of the public auction. The lender also must also send a copy of the notice of sale to you at least 20 days before the sale. The lender will then hold the sale and deed the property to the highest bidder at the public auction. Learn more here…
Real estate investors or those who are buying a house usually browse the list of foreclosed properties trying to find some good deals. Investors often find and buy foreclosed homes for house flipping, trying to earn a profit. For first time homebuyers finding good deals out of foreclosed properties, is it a good idea to buy a foreclosed property?
Dan Rafter published an article at Wisebread answering this important question for first-time homebuyers about buying a foreclosed property. Read the answer to this question below for doing any action.
Is Buying a Foreclosed Home Ever a Good Idea?
Foreclosures are falling across the country. Real estate site RealtyTrac reports that the number of homes in foreclosure dropped 3% in 2015 compared to the previous year. But while foreclosure activity is dropping in most major cities, there are some metropolises where foreclosed properties still account for too large of a percentage of homes on the market.
Here’s the question for home buyers: Do high-foreclosure markets actually represent an opportunity? Do these cities give buyers a chance to get into city neighborhoods that they otherwise might not be able to afford?
Yes, they do. But buyers have to be careful: Purchasing a home that is in foreclosure can lead to big problems.
RealtyTrac said that at the end of 2015, 1.08 million U.S. properties had foreclosure filings on them. These filings include default notices, scheduled auctions, and bank repossessions. This figure is down 3% from the end of 2014.
Even more impressive, it’s down nearly 62% from 2010. That year saw 2.87 million U.S. properties with foreclosure filings on them — an all-time high.
But five U.S. cities in particular are still struggling with too many foreclosures. RealtyTrac reported that as of the end of 2015, 3.43% of the housing units in the Atlantic City, NJ housing market had foreclosure filings. That’s the highest percent of any the major U.S. markets that RealtyTrac charts.
Other cities in the top five, according to RealtyTrac, are Trenton, NJ, with 2.14% of its housing stock having foreclosure filings; the Tampa Bay-St. Petersburg-Clearwater metropolitan area of Florida with a foreclosure rate of 2.03%; Jacksonville, FL, at 2.02%; and Miami, FL, at 1.98%.
Opportunities for Investors
Foreclosures are bad news for neighborhoods. That’s because they tend to bring down the sales prices of the homes surrounding them, even those residences not in foreclosure.
Say a neighborhood has several foreclosure homes that are selling for less than market value. This makes life difficult for other sellers. Sellers listing their homes at $200,000 will struggle to get that listing price if their neighborhood also features eight similar homes that are in foreclosure and all selling near $150,000.
The buyers, looking for bargains, will make offers on those homes first. Other sellers can either lower their asking prices to compete more effectively with the foreclosures, or wait out the wave of local foreclosures in the hopes of nabbing a sales price closer to their actual list price.
But while foreclosures might be a burden for sellers, they do present opportunities for buyers. A lower-priced foreclosure could help buyers find homes in neighborhoods that they otherwise couldn’t afford.
But buying foreclosures can also come with big headaches, mostly because these homes are often in terrible condition. See full post here…
Indeed there can be lots of great finds in foreclosed properties, but finding which one is a good deal could be very difficult especially if you don’t have that much of knowledge in checking foreclosed properties, or in real estate investing in general. Also, you might end up purchasing a house that requires total home repairs or improvement, which adds on to your cost. If you need some help in foreclosed properties, Dependable Homebuyers are here to help you. Visit https://www.dependablehomebuyers.com to get started.
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