WHAT IS A FORECLOSURE?

Property which is in the possession of a lender as a result of a foreclosure or forfeiture.

When a seller (borrower) misses their monthly mortgage payments or defaults on their mortgage, lenders begin foreclosure proceedings. The property then gets put up for trustee sale or foreclosure auction. At this time an interested buyer or investor has the opportunity to bid on the home. At this time the bank or lender may also repurchase back the home. If the property does not sell to someone outside of the bank, the property becomes real estate or bank owned property. Beginning with the notice of default, through the pre-foreclosure stage and into the final foreclosure step of the bank taking possession of the home, or Foreclosure.

Foreclosure homes are often sold by banks at below market values in order to sell quickly. Foreclosure homes are expensive for banks to hold because they require maintenance and the bank may have to repay any liens against the property. Foreclosure homes can be a great option for anyone looking to buy a home because of the potential for savings.

Buying bank owned property (Foreclosure’s) can be time consuming and it pays to do a lot of research into the property and the neighborhood, but the savings can be considerable. More and more home buyers are looking at buying distressed homes (homes in various stages of the foreclosure process) than ever before, in part, because there is so much more inventory. When considering buying bank owned property, it’s helpful to decide whether you have the financing, time and the stomach for potential risk that some types of distressed properties may require. If you’re main goal is savings, though, there are several sales types to choose from:

When a borrower cannot repay the monthly mortgage payments, one option is to sell the property before the bank actually forecloses on the home. A pre-foreclosure may offer a savings from market prices because the seller is motivated to sell quickly.

If the market has softened and the home is worth less than what the borrower originally paid for it, he may negotiate with the bank to sell it at the current market rate with the bank taking the loss. This is another potential opportunity for a buyer to save substantially because the seller and the bank are often eager to sell before the home goes into the final phase of foreclosure.

When a bank pushes forward with a foreclosure, the next step is an auction of the property. This is potentially the most risk laden purchase option for the novice buyer because there is little to no chance to fully inspect the home or perform any research into whether the home carries any liens against it. Most auctions also require a cash payment. For these reasons, foreclosure auctions are usually reserved for seasoned real estate investors.

If a home fails to sell at auction, it becomes a Foreclosure or Real Estate Owned property and the bank fully takes possession of the property. This is another good opportunity for home buyers because the bank will usually be eager to sell the home and may price it below market value. In most cases, the bank will make any initial repairs and will pay any outstanding liens. However, it’s important for any home buyer to have the property thoroughly inspected and have a title search performed to ensure that the great deal doesn’t turn into a cash trap of unforeseen repairs and outstanding lien payments. It also pays to look at neighboring Home Values so you get an idea of local market trends and can evaluate whether the home really is a good deal.