If you are in foreclosure or facing foreclosure then it is important for you to act quickly
You need to consider your options and then make a decision based on your situation
If you are not familiar with foreclosure or how the foreclosure process works then this article below may help you understand it better. However keep in mind that Foreclosure Laws are different in each state and that you should always consult an attorney if you are in foreclosure.
Understanding the Foreclosure Process
The first step for you to understand is how the foreclosure process works. The foreclosure process can be broken down into three key components:
- Foreclosure Auction
- REO/Bank Owned
The first step in the foreclosure process is called pre-foreclosure. When a homeowner has not paid their mortgage for more than ninety days the bank that owns the mortgage on that property files what is called a “Lis Pendens” which means “lawsuit pending” in Latin.
A “lispendens” is a written public notice that a lawsuit has been filed concerning real estate. This notice is filed in the county public records against a piece of property. This notice is also often listed in the classified ad legal section of certain newspapers. Filing this public notice alerts any potential purchaser or lender that the title to this property is “clouded” or unclear.
When a property has a “clouded” title then the title is not “free and clear” which makes the property less attractive to potential buyers or lenders. In reality, once a “lispendens” is filed, a property cannot be sold or refinanced without the buyer being fully aware of the fact that the “lispendens” has been filed. The only way to get rid of a “lispendens” is through the legal process of foreclosure which wipes out a “lispendens”.
Once a lispendens has been filed the property is considered to be in pre-foreclosure. Real estate investors can subscribe to databases like http://www.foreclosures.com, http://www.realtytrac.com and many other similar sites and can get access to properties that are in pre-foreclosure. It is public record so if you are in foreclosure expect to get phone calls, postcards and letters continuously. Investors an also get a list directly from the county clerk by visiting the county courthouse. In some counties these lists are even available online.
Cash investors that are investing in pre-foreclosures are buying a house directly from the homeowner in foreclosure. This negotiation with the homeowner is usually done without the banks knowledge. Investors that are investing in pre-foreclosures will need to negotiate directly with the homeowner about purchasing their house. Since the “lispendens” filing is public knowledge investing in pre-foreclosures is very competitive and many investors will attempt to contact you.
If your house has no equity then you will need to negotiate a short sale with the bank. You can do this yourself but it is much easier to have a short sale negotiator who is skilled in short sale negotiation do it for you. A short sale is where a bank agrees to take less than the full amount owed to them. This occurs when a cash investor buyer is only willing to purchase the property for less than the amount owed on the mortgage by the seller. It is estimated that there are more than 10 million underwater mortgages in the U.S so many people owe more to the bank that what the house is worth. In some cases homeowners may owe up to twice the amount of what their home is worth so banks are very familiar with short sales and millions of short sales are successfully completed every year.
In the case of a short sale the bank is aware that an investor is offering to purchase the property at a discount since the investor will be negotiating with them. The department at the bank that is responsible for negotiating short sales is called “loss mitigation” or “loss prevention”.
There are numerous online sources of pre-foreclosure lists which make the barrier to entry in pre-foreclosure investing very minimal. Anyone can become a pre-foreclosure investor simply by purchasing a list of homeowners in foreclosure. Since the information is public record it can even be obtained for free by visiting the county courthouse.
For this reason, pre-foreclosure investing is fiercely competitive. Since there are so many potential pre-foreclosure investors, the homeowners in foreclosure are literally bombarded with offers to purchase their homes. This makes it difficult for investors to differentiate themselves from one another to the homeowner. Additionally there is often hostility and anger from the homeowner since they do not want to be bothered by “foreclosure sharks” or people that they perceive as trying to take advantage of their situation.
For the above reasons, pre-foreclosure investing is a difficult and competitive area of foreclosure investing. If the homeowner cannot do a loan modification or sell their house to a cash investor via a short sale then the house goes to the foreclosure auction.
The foreclosure auction is a public auction that allows any member of the public to bid on your house. Typically they need to register prior to the day of the auction and they need to have a cashiers’ check made payable to the clerk of the court for at least 5% of the purchase price although this amount differs by county and state.
If an investor bids on your house and wins the auction they are expected to pay the balance of the amount either later that same day or within 24 hours in cash. In the event that the investor does not pay the balance in time then in most counties they will forfeit their deposit.
Investors cannot get a mortgage to buy a property at the foreclosure auction. They need to have the ability to pay cash for the property and they need to be able to produce both the deposit amount and the full amount in cash usually within no more than 24 hours after the auction has ended. Since so much cash is required, investing in foreclosures by buying at the courthouse is difficult for new investors.
If you are the homeowner and your house is sold at the foreclosure auction you will need to leave immediately. You will have very little time and in some states you will have as little as 5 days before you have to vacate the house. It is very important for you to understand this since if you do not vacate the house the sheriff will come to your house and remove you by force. This is a terrible option and especially if you have kids and don’t want your neighbors to know what is going on you should never ever let it get to this. Know if your house is in foreclosure, know if there is an auction date set and make sure you hire an attorney to defend you. If you are negotiating a short sale know that if the bank does not accept the short sale offer then the foreclosure proceedings will continue. And if they do then it is just a question of time before you will need to vacate your house. For this reason you should be aware of the date, make plans to move and find another house to rent and be ready to move the week of the auction or even a few weeks prior to the auction.
Foreclosure is a difficult process both emotionally, psychologically and financially. However take comfort in the fact that millions of homeowners have faced foreclosure like you and have moved on with their lives.
The Court House Sale
Usually the bank is prepared to let a property get sold at the courthouse for eighty to ninety percent of its market value. Depending on economic times, this number can be higher or lower. The attorney representing the bank will protect the banks interest by bidding up to the value of the amount that they are willing to sell their property for (usually close to the amount that is owed). It is a myth that foreclosures get sold at the courthouse for pennies on the dollar. In reality, the bank will protect their interest up to almost the full amount that is owed to them.If the bank is the highest bidder, then the property goes back to the bank and you are no longer the owner of the house. The house is now owned by the bank and is called a bank owned property or REO.
REO stands for “real estate owned” as in real estate owned by the bank. Since banks are not landlords the first thing that they do with a property that comes back to them is they try and sell it. If the homeowner is still in the property they will remove them via the eviction process. Then they list the property for sale on the real estate market via the MLS (multiple listing service). The way that they do this is by using “asset managers” or asset management companies which are companies that represent the banks in dealing with their REO properties.
These asset managers submit their REO properties to pre-established realtors that only work with REO properties. These realtors give their asset managers a “brokers’ price opinion” (BPO) which lets the bank know at what price the realtor thinks the house should be listed. Usually bank owned properties are listed at competitive prices in order to facilitate a quick cash sale. REO properties are cash only deals meaning any potential buyer needs to be pre-qualified by the bank and needs to show a “proof of funds” like a bank statement. Buyers need to show that they have the cash available to purchase a property.
Buying REO properties is not as competitive as pre-foreclosures but is more competitive than buying at the courthouse. The reason is because all of the properties are listed on the multiple listing service (MLS) so any member of the general public can have access to REO properties through websites like http://www.realtor.com and http://www.zillow.com. This makes purchasing REO properties fairly competitive although the barrier to entry is high since you need to be a cash buyer and cannot buy these properties with a mortgage. So unless you have a ton of cash saved up you are not going to buy your house back. That is why it is important when you are in foreclosure to not be in denial and to understand the entire process and how it works.
If you are going to lose your home then it is important for you to act fast!
Consider your options:
- Can You Negotiate A Loan Modification?
- Can You Borrow Money And Reinstate Your Mortgage?
- Can You Complete A Short Sale?
- Are You Going To Lose Your Home?
Look at the facts, assess your situation and then act fast. If you have been living in your house and not been making your payments then start saving up that cash since you will need it to move into a rental and will need to have first, last and security deposit. If you can save up enough cash you might even be able to find a rent to own property or a property where the seller will finance you.
The most important thing with foreclosure is for you to be aware of the situation and not be in denial.