Foreclosure takes away ownership rights an owner has over a property and gives it to the lender in order to sell the property for the purpose of paying a debt. In order for this to happen, the following must be true:
1. The property must be collateral for the debt, to be sold.
2. The debt must be defaulted on. Payments are not up to date.
3. Creditor must fulfill all the legal requirements of the state the property is in.
The lender does not own the home. Real Estate is owned by the borrower. The property is merely collateral. Foreclosure is not repossession. If you miss just one payment or are late does not mean you are in foreclosure. The creditor must take certain legal steps. Check with the state you are in to see what the steps are.
A property isn't foreclosed on until it is sold at an auction and as per the state's procedure. What being in foreclosure means is the the lender has initiated proceedings throught the legal process to foreclose a property.
Usually, once there is a default, lender initiates a collection process. This is the best moment for a homeowner to reinstate the loan and bring it current. Usually, if after three months the homeowner has not brought it current the lender takes more drastic steps.
This process starts if the creditor fails to collect. This starts with a legal notice to the owner informing them that if the loan is not caught up within a certain time frame, the property will be sold at auction. This period is known as pre-foreclosure. The owner has until the foreclosure date to resolve the loan. Ways to solve this default are: refinancing, paying off the debt in full, or selling the property. If none of the above happens by the auction date, the property will be sold to the highest bidder. The proceeds from the sale are used to pay the creditors. Anything over that will go to the owner.
These foreclosures happen when properties are over- mortgaged. This means they owe more on the property then the property is worth. The only way for the property owner to get out of debt is for a short sale to happen, before going into foreclosure.
The ways properties become over-mortgaged are: when a second, third, and fourth is taken out; liens; 100% financing; and ARM loans.
The problem with 100% loans is that the property quickly becomes over-mortgaged if there is a default, because if the owner stops paying, the debt will usually grow faster then the appreciation. Usually following this are taxes, HOA fees and neglected utilities.
Usually this debt will exceed 130% of the value. These secondary mortgages are at the mercy of the lender who has the first. The secondary creditors will ofter negotiate discount prior to foreclosure to mitigate their losses.
This knowledge is very valuable to investors, brokers, Realtors, and mortgage brokers.
What is a Short Sale?
This is the sale of a property after getting approval from the creditors, for less than what is owed on it. This means that they are willing to settle for less than what is due. Lenders realize they will not win all the time. Changing economic conditions, acts of God, conflicts are some of the causes of unforeseen situations that can turn bad. This sale occurs when debtors agree to settle their liens for a known amount of money as opposed to taking a chance at auction. At auction prices are usually discounted. Lenders are usually willing to mitigate further risk of loss by making deals before auction. Their business is to lend capital, not dispose of foreclosed properties.
Contrary to what you may think, there doesn't have to be a BIG loser to make money in the foreclosure business.
The time leading up to foreclosure is very stressful and volatile for all parties. A professional in this business mediates a settlement that all parties can move on. In a short sale, lender has agreed to settle without further claims, and the property owner clears their obligations without negative effects of a foreclosure and garnishment off additional monies. The professional will be thanked by all of the parties involved.
Why do this?
Learning all you can about pre-foreclosure investing can greatly expand a real estate agents earning potential. If is vital to understand properties in foreclosure. The benefit of being well versed in foreclosure is being one of very few who are able to understand these proceedings and transactions. Many do not want to work with these listings. Due to this, it is easier to obtain listings or obtain listings from other agents.
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