A
foreclosure is a property that is repossessed or put up for
sale by a lender as a result of a homeowner's default on
their mortgage loan. Generally, the process begins when the
lender issues a Notice of Default informing the local
authorities and the homeowner of their intention to seek a
foreclosure. Once the Notice of Default is issued, there are
several possible outcomes of the foreclosure process:
The
pre-foreclosure period can range anywhere from one month to
a year, depending on local law and custom. Often times,
homeowners who cannot pay off their default debt will turn
to selling their property during this period. For buyers,
this can be a great opportunity to find significant
discounts, as most homeowners look to sell for reduced
prices simply to raise enough to pay off their remaining
loan debt. Buying a pre-foreclosure involves dealing
directly with the homeowner, and oftentimes this means
approaching homeowners and actively seeking out the deals.
However, the results can be quite rewarding in today's
market.
The
foreclosure auction is the most commonly known way in which
a foreclosure can be purchased. If the homeowner does not
reinstate their mortgage, the property goes to a public
auction, where anyone can bid. Auctions can be tough because
they sometimes occur on short notice and don't allow you
much time to do research and analysis of the property.
However, they offer some of the best discounts, often
ranging up to 50% below market value, and avoid some of the
trouble of negotiating with a homeowner for a good price.
If
a foreclosure auction fails to satisfy a minimum bid amount,
or the lender bids on the property themselves, then the
foreclosure home may be awarded to the lender. This is known
as government foreclosures and is most common with bank and
government lenders like HUD. When this happens, banks will
usually fix up the properties themselves before selling
them, which can help you save on repair costs after you buy.
However, the discounts you'll find on bank-owned homes
aren't generally as high as through the auction method. But
this can still be a great way to find quality properties for
less.
Buying
foreclosures can be a great way to save money, but you'll
have to have the
You might want to think twice about making an offer on a short sale home. It's not as simple as you may believe, and very few can close in 30 days or less.
Many of our home buyers have waited 4 to 6 months to close on a short sale, sometimes longer!
What is a Short Sale?
Be aware that the seller need not be in default -- to have stopped making mortgage payments -- before a lender will consider a short sale. A lender may consider a short sale if the seller is current but the value has fallen. The seller may have over-encumbered, owe more than the home is worth, so a discounted price might bring the price in line with market value, not below it.
Hire an Agent with Short Sale Experience
An agent with experience in short sales will help to expedite your transaction and protect your interests. You don't want to miss any important detail due to inexperience or find out your transaction is not going to close on time because no one has followed up in a timely manner.
Give the Short Sale Lender Time to Respond
Some lenders submit short sales to committee, but most can make a decision within two to three months. If you don't feel you can sit back and wait a short sale may not be for you!
If you have any questions you may contact Joe Zarroli directly at 609.402.8900.
Common Short Sale TermsAdvertising- (or Publishing)A copy of the Notice of Trustee Sale must be published once a week for three weeks. Bankruptcy-Chapter 7Often called a straight bankruptcy-involves the liquidation of all non-exempt by the bankruptcy trustee, who in turn distributes the proceeds to qualified creditors. All dischargeable debts are discharged and the person(s) filing receive a ‘fresh start’. Bankruptcy-Chapter 13Often called a debt reorganization. A Chapter 13 Bankruptcy is generally appropriate for those individuals who have non-exempt property they wish to retain and who have enough income to reasonably pay the reorganized debt after covering reasonable living expenses. BeneficiaryThe beneficiary in a foreclosure context is generally the mortgage lender. Frequently referred to as the ‘Benny’. Credit CounselingUnder the new bankruptcy law which took effect in October of 2005, those wishing to file bankruptcy must complete an approved credit counseling course within the six (6) months prior to filing. Deed in Lieu of ForeclosureThe voluntary surrender of property by an owner/borrower to a lien holder that eliminates the need to continue foreclosure action by the lien holder. The lien holder can refuse to accept the Deed in Lieu and file a Notice of Non Acceptance with the County Recorder. Discounted PayoffThe payoff of a mortgage loan where the lender accepts an amount less than the actual amount owed to payoff the loan. Equity DeficientA property is Equity Deficient when, if sold, sales proceeds would not fully pay off existing mortgage debt. Forbearance AgreementAn agreement between a mortgage holder and a borrower that lays out a specific loan payment plan and puts a stop on the foreclosure action so long as the borrower meets the terms of the agreement. The payment plan includes provisions for repayment to the mortgage holder of all delinquent interest and fees and could include extending the life of the mortgage beyond it's original term. A Forbearance Agreement is a tool that allows the borrower to keep the property. Judicial ForeclosureA foreclosure action conducted through the courts instead of through a foreclosure trustee. Judicial Foreclosures are very uncommon in California, particularly on residential properties. Should a lender elect to pursue a deficiency judgment, it would be through a Judicial Foreclosure. Junior LiensA lien, usually a mortgage loan, that is subordinate to a Senior Lien, usually a first mortgage. Lien priority is generally established by order of recordation . NOTE: if you refinance a 1st mortgage on a property with a 2nd mortgage already in place the new 1st mortgage holder will require a subordination agreement from Junior Lien holders to legally establish the new mortgage holder as 1st or Senior Position. LIBOR (London Interbank Offered Rate)The interest rate charged among banks for short-term Eurodollars loans - LIBOR is a very common index for adjustable rate mortgages (ARM). Loss MitigationHome mortgage lenders look to limit losses on delinquent mortgages by working out solutions with borrowers through their Loss Mitigation Departments. MailingA copy of the Notice of Trustee’s Sale must be mailed (certified and first class) at least 20 days before the foreclosure sale to the borrower and to anyone who was entitled to receive a copy of the Notice of Default and Secretary of State and IRS, if applicable. NODShort for Notice Of Default. Notice of DefaultAn official notice filed and recorded by a designated trustee at the request of a lender indicating lender has commenced foreclosure action. Notice of Trustee SaleAn official notice that is posted, mailed, published/advertised and recorded by trustee at the direction of lender indicating lender’s intention to sell the property at public auction. The notice includes a specific date, time and location. PostingA copy of the notice of sale must be posted in a conspicuous place on the property to be sold at least twenty days before the sale. Also, a copy of the notice must be posted at one public place in the city where the property is to be sold at least twenty days before the sale. PostponementTrustee Sales may be postponed by the first at the direction of the lien holder. Notice may be given in advance or at the time and location specified for the intended sale. Private Mortgage Insurance (PMI)A policy of insurance paid for by the borrower to protect the lender in the event the borrower defaults on the mortgage. Typically PMI is required by the mortgage holder when the down payment is less than 20% of the purchase price. Qualifying FundsIn order to bid at a Trustee Sale bidder must have qualifying funds available at the sale. Qualifying funds are cash or a cashiers check(s) drawn by a State or National Bank, a check(s) drawn by a State or Federal Credit Union or check drawn by a State or Federal Savings and Loan Association, savings association or savings bank specified in section 5102 or the Financial Code and authorized to do business in the State of California. REOShort for Real Estate Owned. When a mortgage lender acquires a property, typically through foreclosure, it becomes real estate owned – or REO. ReinstatementTo bring the loan current. Borrower may reinstate up to five (5) business days before foreclosure sale. Short SaleThe sale of a home which is completed through negotiation with the existing lender(s) in which the lender(s) agrees to accept less than the full amount owed to satisfy the debt allowing the debt to be ‘paid off’, short. 1099-CIRS Form 1099-c is issued by those canceling all of part of a debt to the person receiving debt relief. Note: The cancelled debt may not need to be reported as income. Trustee (Foreclosure Trustee) A Foreclosure Trustee is appointed by the mortgage company when a mortgage reaches the default status for the purpose of processing the foreclosure. Trustee DeedThe deed given to the highest bidder at auction or the foreclosing lender upon completion of the foreclosure. Trustee SaleConducted by the Trustee. The property is sold at auction to the highest bidder, or taken back by a foreclosing lender. |
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