Taking the mystery out of foreclosures!
I get asked questions about foreclosures all the time. I will do my best, in this blog, to answer those questions and educate the public on foreclosures, short sales and distressed properties.
Today, the numbers of these sales are rapidly rising. If you're interested, the current buyer's market in most cities is a great time to acquire these below-market-value properties.
SOME CAUSES OF FORECLOSURES AND DISTRESSED PROPERTIES INCLUDE divorce, unemployment, drugs, alcohol, death or serious illness in the family, disputes between owners, local economic conditions, mental problems, and good old-fashioned greed.
But the real reason for foreclosures and distress property situations usually is the borrower isn't acting rationally to solve the problem. So you can't afford the increased monthly payments because your adjustable-rate mortgage just "adjusted" and your payment went up by $300. To make matters worse, home market values in your neighborhood are stagnant or slipping so your market value is no longer appreciating.
You consider selling. But local Realtors tell you there is a glut of listings for sale nearby and you would be lucky to sell for the amount of your mortgage balance. Should you stop making mortgage payments and walk away? Of course not. That would ruin your credit and you need a place for your family to live.
Rather than face foreclosure, the obvious solution is to increase your monthly income by at least $300. Maybe you can get a part-time evening job. Or perhaps your spouse or teenage child can get a part-time job to help out. One way or another, virtually every foreclosure and distress property situation can be avoided.
SOMEONE ALWAYS PROFITS FROM FORECLOSURE. If you didn't cause the problem, you might as well profit from someone else's problem.
Most institutional mortgage lenders do not want to foreclose and acquire the property. It costs lenders thousands of dollars to hold foreclosure property instead of keeping their mortgage money earning interest
If you understand the simple foreclosure rules, you can profit from someone else's distress. That's why it pays to understand the basic foreclosure profit opportunities.
THE JUDICIAL FORECLOSURE OR NOTICE OF DEFAULT. Until the mortgage lender gives up on the borrower, the public usually does not know there is a problem. But when the lender records a judicial foreclosure lawsuit on a mortgage, or files a notice of default on a deed of trust, the borrower's default becomes public knowledge at the local court house.
At this point, bargain hunters swing into action to contact defaulting borrowers to see if there is a "preforeclosure opportunity" during the lender's reinstatement period before the official foreclosure auction.
This reinstatement period is generally three to six months in most states. This time gives borrowers the opportunity to either sell the property or reinstate the mortgage before losing the property at a foreclosure sale.
SHORT SALES USUALLY ARE NOT BARGAINS. Sometimes during the mortgage reinstatement period it becomes evident the home's fair market value is less than its mortgage balance. When that happens, the real estate listing agent can confront the mortgage lender with this information and try to get them to accept a "short sale." That means the lender agrees to accept less than the mortgage balance as full payment of the mortgage.
For example, suppose a mortgage balance is $250,000 but recent comparable sales prices of similar nearby homes are only $225,000. If the mortgage lender agrees to a $225,000 short sale, the buyer can purchase for $25,000 less than the existing mortgage balance.
The defaulting borrower on a short sale walks away with nothing. However, the borrower gets rid of his mortgage obligation without a foreclosure on his credit record. But the downside, in this example, occurs when the lender sends the borrower an IRS 1099 form showing $25,000 of taxable debt-forgiveness income.
The buyer of a short-sale house may or may not actually be getting a bargain purchase price. Lenders are usually very demanding to insist that the home sell for as much as can be obtained.
Another problem with short sales is lenders often take 30 to 90 days before deciding to accept or NOT. So if you are hoping to count on your moving date, this might not be feasible.
CONTACT THE TEAM ABOUT FORECLOSURE
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