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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. The foreclosure process begins when a borrower/owner defaults on loan payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens. The foreclosure process can end one of four ways:
1. The borrower/owner reinstates the loan by paying off the default amount during a grace period determined by state law. This grace period
is also known as pre-foreclosure.
2. The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history. This is called a short sale. This process can take up to 9
months to complete and the price that the owner advertises the property for is rarely the price it is sold for.
3. A third party buys the property at a public auction at the end of the pre-foreclosure period.
4. The lender takes ownership of the property, usually with the intent to re-sell it on the open market.
This foreclosure process allows for three opportunities for finding bargains on foreclosure properties.
Wondering what happens after foreclosure? Then please read on. Remember that understanding foreclosures is the first step for investors to buy foreclosure properties.
If the loan is not reinstated by the end of the pre-foreclosure period, potential buyers can bid on the property at a public auction. Buyers often are required to pay in cash at the auction and may not have much time to research the title and condition of the property beforehand; however, a public auction often offers some of the best bargains and avoids the unpredictability of dealing directly with the borrower/owner.
If the lender takes ownership of the property, either through an agreement with the owner during pre-foreclosure or at the public auction, the lender will usually want to re-sell the property to recover the unpaid loan amount. The lender will then typically clear the title and perform needed maintenance and repair. Bank foreclosures can become government foreclosures if the loan is backed by a government agency such as the Department of Housing and Urban Development (HUD) or the Department of Veterans Affairs (VA). In that case the government agency would be responsible for selling the property.
You will need to make sure you have all the foreclosure information on the property, some items to consider:
1. Are there any liens or mortgages outstanding on the property.
2. Are there other units in the development in foreclosure and if so how many expressed as a percentage of the development.
3. Is the Home Owners Association (HOA) fund in order ?, If there are a number of units in a development foreclosed upon then the HOA can impose a "Special Assessment". This special assessment will be an additional cost to you as owner and will supplement the pre-foreclosure costs of general maintenance and upkeep of the development. These costs remain as a fixed cost and must be paid no matter how many units are contributing to the Association. This is a cost that can be levied on your unit which will increase your carry cost on a monthly basis.
4. Property Tax - it is essential that you check that all property back tax has been discharged for the unit you are interested in purchasing. This can be checked in the local county tax office.. It is important to check that the county have reassessed the property tax in your particular development to ensure that you are being taxed correctly on the amount you actually pay for the property and not the previous purchase price.
