It seems that stories about the foreclosure market have taken over the news lately. Even though they try to present information in ways so as to be understandable by most, it can still be very confusing! Below are the answers to some of the most frequently asked questions about foreclosures and other types of distressed property.
What is a foreclosure? Foreclosure can mean a number of different things depending on the context. At its base definition, foreclosure is the process by which a lender takes possession of a piece of property when the owner has defaulted on their payments. The foreclosure process can start as soon as the first payment is more than 30 days late and can stretch out over many months, or even up to a year. Once the foreclosure process is complete, the lender will arrange to sell the property at auction.
What is a foreclosed home? When a property does not sell at auction, it becomes a part of the lender’s inventory of real estate owned (REO) and is usually listed with a local real estate agent to be sold like any other property. These properties can be referred to as foreclosed homes, bank owned homes or REO’s.
What is a short sale? A short sale occurs when the lender agrees to allow the property to be sold for less than is currently owed on the mortgage. Primarily, this occurs when a homeowner has suffered some type of hardship (divorce, job loss, death of a spouse), is struggling to make their payments and their home is worth less than the outstanding balance on the mortgage. Short sales are often a precursor to a foreclosure but do require more than just being underwater on a mortgage.
What is a robo-signer? Robo-signers are mortgage lending company employees who prepared and signed off on foreclosures without reviewing them, as the law requires. Jeffrey Stephan, the GMAC employee who was the first identified as a robo-signer, has acknowledged that he prepared 400 such foreclosures a day. Because these documents were not reviewed property, there has been some question about the validity of many foreclosures.
Is it safe to buy a foreclosed home? Yes, as long as title insurance is available on the property, buying a foreclosed home is no different than buying any other type of home. Even if the property you purchase was wrongly foreclosed on, if you have title insurance, the former owner cannot seize the home. They can attempt to obtain financial damages from the lender but they have no recourse in getting their home back.
Are foreclosures always “good deals”? While most foreclosed homes are listed below market value, whether they are a good deal is usually based on their condition. Some of these homes have been vacant for many months and may have extensive damage although there are many that are in move in ready condition. The only true way to tell if a property is a good buy, is to compare it with other properties for sale in the area. Your agent can run a market analysis report that will show recent activity on similar properties. This report should be enough to let you know if you’re getting a deal.