Foreclosures

Foreclosures

Definition

Properties that have been repossessed by the lender for a failure by the homeowners to make payments on time. These homes are then sold at auction to recoup the amount owed.

What is Foreclosure?

Foreclosure

Foreclosures have been a very hot topic in recent years for a number of reasons. First of all, many people are finding themselves in the unfortunate situation of not being able to afford their monthly mortgage payment. On the other hand, home buyers and investors have found foreclosures to be a wonderful opportunity to make a profit on residential and commercial properties that are priced way less than market value in many cases.

The definition of foreclosure is very simple. It is the process by which a mortgage company or bank takes possession of the home after a borrower has defaulted. The borrower may have defaulted for a number of reasons including the loss of a job or medical problems. Whatever the reason, a foreclosure can be a very upsetting experience for the homeowner who is losing their home.

How Does Foreclosure Work?

The foreclosure process varies from state to state. Some states have a judicial process by which the lender must go through a court proceeding in order to be able to foreclose on a borrower. Other states use nonjudicial foreclosure which only requires that notice be sent to the borrower before the property is advertised in the legal newspaper for four consecutive weeks. If the borrower has not been able to catch up their payments and possible legal fees, the property can be sold on the courthouse steps at the first of the following month.

There are several steps of foreclosure that can affect the buying process. First, the borrower is in a pre-foreclosure situation where they know they are in default and might try to sell the property quickly to get out from under the debt obligation. This will only work if they can sell it for more than they owe.

Secondly, some borrowers are able to do a short sale on their property before it goes into foreclosure. This means that the lender will work with them to take a reduced payoff so that they can sell the property to a third party instead of foreclosing. Some banks are much more willing to work through the short sale process than others. If a seller has a viable buyer on the hook, it makes sense to try and get a short sale completed to avoid the whole foreclosure process.

If the property does go to foreclosure, it may be auctioned at a sheriff's sale or on the courthouse steps. Sometimes it will sell there, but often it will not. This leads the the final step which is where the bank will take it back as an "REO" (real estate owned) property. That means the bank will need to manage and list the property with a real estate agent. Banks don't like to do this, so they are much more negotiable since they want the property off of their books quickly.

For more information about the foreclosure process, be sure to visit our foreclosure process page and our foreclosure laws page.

Buying Foreclosure Homes

There are several different benefits for buying foreclosure homes. Here are some of the highlights:

  • Lower entry price: Many home buyers find that purchasing foreclosures allows them to get into the property for a lower price. This means that you can walk in with immediate equity. However, you also need to factor in additional costs such as repair and rehab work that may need to be done.
  • Seller more motivated: Whether you're dealing directly with the seller in a pre-foreclosure situation or with the lender after a foreclosure has happened, you will typically find that they will be much more motivated to get rid of the home. This means better a negotiation position for you.
  • Less emotion: When you purchase directly from a bank, they have no emotion tied up in the deal. They simply want a certain amount for the property. This means it's much easier to negotiate with them. If you can meet their bottom line number and close quickly, that is pretty much all a bank cares about.

Is Foreclosure a Profitable Investment?

Foreclosures are definitely one of the best investments available today. It's a great real estate opportunity to purchase a foreclosure whether you plan to live in it or flip it for a quick profit. Many homebuyers will live in a foreclosure for a couple of years while they do renovations and then flip the property for cash. Some buyers choose to purchase a property to rent out to tenants so that they can maintain a passive income source for years to come. Take a look at our foreclosure investing page for more information.

What are the Types of Foreclosures?

There are many different kinds of foreclosures available today. Here are some of the most popular types of foreclosures:

How to Find Foreclosures?

The best way to find foreclosures is by visiting a one-stop website solution at www.ForeclosureDeals.com. Our foreclosure listing service puts deals together from many different sources of information including banks, Realtors, Fannie Mae, VA, HUD, Freddie Mac and others. Instead of spending your time driving around looking for potential deals, you can simply click a few buttons and have all of the relevant information at your fingertips. While your competitors are out there searching for deals, you will have a steady source of prospective properties at any given time. Take a look at our search page for more information.

FAQ about Foreclosures

  • The amount of time a foreclosure takes varies by state. In general, the official foreclosure process could begin as soon as 60 days after a homeowner misses a loan payment. Typically, foreclosures take anywhere from 90 days to 1 year to be finalized and sold. More >>

  • The road to foreclosure begins with a missed payment. If the homeowner doesn't pay before a deadline, the bank will declare them in default and will send a demand letter to the homeowner to pay the delinquent amount, plus fees and interest, by a certain date. This is the final warning. If the deadline passes, the lender will send a notice of sale to the homeowner that contains the date at which the home will be sold at auction. This is the formal beginning of the foreclosure process. The homeowner is told to leave and the home is sold at auction. More >>

  • The answer depends on how you are going to pay for the new home. Various lenders have their own guidelines on if/when they will approve someone who has had a foreclosure on their record. Securing a FHA loan in particular requires three years after the foreclosure for eligibility, with no missed payments of any kind. More >>

  • Usually, yes. Most foreclosures are purchased with few minor repairs needed. You can find properties, though, that are in poor condition or have been vandalized. These properties must be repaired before they can be deemed safe to live in. More >>

Go to the Foreclosures FAQ page

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