Foreclosure Basics

Foreclosure Basics

Foreclosure, simply speaking, is taking possession of a mortgaged property because someone failed to keep up the mortgage payments.  The homeowner lost it, the lender now owns it.

Approximately one third of homes sold nationwide in 2010 were foreclosures. One third; that’s a lot of properties.  In the first quarter of 2011, 47% of house purchases (we’re talking almost half!) were made by investors, so know you’ll have a lot of competition shopping for the best deals.

How do you know you’re in threat of foreclosure? You’ll receive, in the mail, a formal demand for payment from the lender.  Depending on your state, the lender will issue this letter of notice or Notice of Default (NOD) when the homeowner is 3 months behind on the mortgage payments. The notice is a threat to sell your property, terminate all your rights in that property and evict you from the premises.  Many mortgage contracts state that the lender has the right to do this when you’re late with your payment the very first time.  Most won’t, they have too much going on and really just want the payments they get from you every month, but read your contract to know what they can do legally.

Foreclosures are not only a problem for the borrower.

It was recently announced that at the end of the first quarter of 2011, Bank of America had $2 billion in foreclosed properties on its book and its customers were late by 90 days or more on $24 billion of its total loans.  These loans included both commercial and residential properties.

Foreclosure proceedings vary from state to state. In states where mortgages are used, home owners can end up staying in the property for almost a year after the process begins.  In states where trust deeds are used, a seller has less than four months before the property is sold at a trustee’s sale.  Click the above link to check your states laws.

When selling a foreclosure the seller, usually a bank, will ask for your pre-approval letter before accepting any offer. Unless you plan to pay cash, you’ll need a recent lender pre-approval letter describing how much money you can borrow.  Banks are very busy and want to know they’re dealing with a qualified buyer.

With a foreclosure purchase, the property comes “as is”.  Be sure to have the home inspected prior to purchase so you’ll have a good idea of what it will cost to do the needed repairs.  Figure these costs in as part of your “true” purchase price.  The property may not be such a great deal, after all.

When planning to buy a foreclosure, be prepared to write a lot of offers for different properties before you finally purchase one. The great foreclosure deals go quickly and there’s a lot of competition for them by both investors and Realtors. Those two often work together and many foreclosure specialists work directly with investors who are able to buy quickly with cash. This means that you won’t have time to shop for a home and find financing later.  Have your financing lined up before you begin your offer process.

Are you interested in purchasing a foreclosure or a short sale?

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