Q. How does a home go into foreclosure?
A. Foreclosure proceedings usually begin after a borrower has skipped three mortgage payments. The lender will record a notice of default against the property. Unless the debt is satisfied, the lender will foreclose on the mortgage and proceed to set up a trustee sale.
Q. Are foreclosures an option?
A. A foreclosure property is a home that has been repossessed by the lender because the owners failed to pay the mortgage. Thousands of homes end up in foreclosure every year. Economic conditions affect the number of foreclosures, too. Many people lose their homes due to job loss, credit problems or unexpected expenses. It is wise to be cautious when considering a foreclosure. Many experts, in fact, advise inexperienced buyers to hire an expert to take them through the process. It is important to have the house thoroughly inspected and to be sure that any liens, undisclosed mortgages or court judgements are cleared or at least disclosed.
Q. What are problems with buying foreclosures?
A. Buying directly at a legal foreclosure sale is risky and dangerous. It is strictly caveat emptor ("Let the buyer beware"). The process has many disadvantages. There is no financing; you need cash and lots of it. The title needs to be checked before the purchase or the buyer could buy a seriously deficient title.The property's condition is not well known and an interior inspection of the property may not be possible before the sale, says Wiedemer.
In addition, only estate (probate) and foreclosure sales are exempt from some states' disclosure laws. In both cases, the law protects the seller (usually an heir or financial institution) who has recently acquired the property through adverse circumstances and may have little or no direct information about it. Please check with your tax professional.
Q. What types of foreclosure are there?
A. Judicial foreclosure action is a proceeding in which a mortgagee, a trustee or another lienholder on property requests a court-supervised sale of the property to cover the unpaid balance of a delinquent debt. Nonjudicial foreclosure is the process of selling real property under a power of sale in a mortgage or deed of trust that is in default. In such a foreclosure, however, the lender is unable to obtain a deficiency judgment, which makes some title insurance companies reluctant to issue a policy.
Q. How do you get financing for a foreclosure?
A. One reason there are few bidders at foreclosure sales is that it is next to impossible to get financing for such a property. You generally need to show up with cash and lots of it, or a line of credit with your bank upon which you can draw cashier's checks.
Q. Where can you find foreclosures?
A. In most states, a foreclosure notice must be published in the legal notices section of a local newspaper where the property is located or in the nearest city. Also, foreclosure notices are usually posted on the property itself and somewhere in the city where the sale is to take place. When a homeowner is late on three payments, the bank will record a notice of default against the property. When the owner fails to pay up, a trustee sale is held, and the property is sold to the highest bidder. The financial institution that has initiated foreclosure proceedings usually will set the bid price at the loan amount.
Despite these seemingly straightforward rules, buying foreclosures is not as easy as it may sound. Sophisticated investors use the technique so novices may find themselves among stiff competition.
Resources:
* "The Smart Money Guide to Bargain Homes, How to Find and Buy Foreclosures," James I. Wiedemer, Dearborn Financial Publishing, Chicago; 1994.
* "Real Estate Principles," Charles O. Stapleton III, Thomas Moran and Martha R. Williams, Dearborn Financial Publishing, Chicago; 1994.
* "Real Estate Investing From A to Z," William H. Pivar, Probus Publishing, Chicago, 1993.
Copyright 1999 Inman News Features
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