It seems that at least once a week or more I get a call on one of our listings and at some point the discussion about foreclosure comes up. That is not surprising, The part that surprises me is the amount of misinformation that is out there in regard to foreclosures, how to buy them, where to buy them and the foreclosure process in general.
Just this afternoon I got a call from a potential buyer who heard from a neighbor that one of my listings was in foreclosure. He said, "I heard it was in foreclosure and so the bank must own it right?" I told him, "No... it is in foreclosure but still within the 1 year redemption period." and asked if he was interested I owning the property.
He continued to probe into the details of the foreclosure which is when I asked him if he truly understood the foreclosure process. I soon discovered that he had been given a lot of bad advice from other people. The first thing one needs to know is just how the foreclosure process works. The process goes something like this:
- AFTER 30 DAYS LATE - Most lenders will call you within 15 days after missing a mortgage payment. Any time you're late on your mortgage payment it's technically a default, but generally a lender would not foreclose until you are at least 90 days late.
- AFTER 60 DAYS - After missing a payment for 60 days you will generally continue to receive calls and you may receive a letter offering to assist you. CALL YOU LENDER because they want to help you. Often times they will discuss options available to you.
- AFTER 90 DAYS - Generally after 90 has passed without payment (especially if thee is no contact with the lender) the lender will begin the foreclosure process. You will be notified in advance and generally be given the opportunity to bring your payments current or make other arrangements.
- NOTICE OF FORECLOSURE - Approximately 14 days after foreclosure is started a notice of foreclosure is published. The notice must be published once a week for 4 weeks in a newspaper that circulates in the county where the property is located. The notice must also be conspicuously posted at the property and the lender has a right to enter the mortgaged premises for this purpose. As a homeowner you have rights at this Point. The borrower can cure the default and keep the existing financing prior to the sale if they pay all of the payments that are past due prior to the sale date. They could also sell the house and pay the loan off in full (or ask for a "Short Sale" which is discussed later).
- SHERIFF'S SALE - In Grand Traverse County the Sheriff's sale is held on the second floor of the Court House twice a month. Currently approximately 15-30 homes go up for sale every other week. It's an auction and the house is sold to the highest bidder over the minimum bid (which is established by the lender prior to the sale). In Grand Traverse County approximately 97% of all mortgages are purchased by the lender. The lender will buy the property and Sheriff's Deed is recorded. At this time the lender (or highest bidder) owns the home but YOU DO NOT HAVE TO MOVE OUT OR ALLOW ANYONE ACCESS until the redemption period expires. The amount of the sale is typically the principal balance of the loan plus interest, late charges and legal and court costs.
- REDEMPTION PERIOD - The rules can vary, but in Michigan the redemption period is 6 months for single family homes on less than 3 acres. If the property is over 3 acres the statutory redemption period is 12 months. During this time the homeowner may continue to occupy the home (no payments are made) and has a right to redeem the property by paying the full amount of the sheriff's sale (this could be less then the original balance of the loan) plus interest at the rate of the original mortgage. This could be done by getting a new mortgage or selling the home.
Take note: The redemption period can be reduced by the court to as little as 30 days if the property is abandoned). Generally after a sale, the lender will hire an asset protection company to keep an eye on their property. Often times someone will drive by and determine if there appears to be anyone living in the property.
If at any point the property appears to be abandoned, the lender may attempt to shorten the redemption process by court order. In that case a notice will be sent to the last know address as well as posted on the property. The homeowner will be give 15 days to respond or the court may deem the property abandoned and the blender will take possession. Any remaining personal property may be removed.
Foreclosure is a long and arduous process and circumstances will vary with each and every lender. The above example is just that an example. If you are having trouble making your house payments the best thing to do is to be honest about it with your lender. Call them and be prepared to explain your situation in detail. The bank does not want to foreclose so they are generally willing to try to create a workout plan. If you're having trouble making your house payment the best thing to do is to face up to it early and you can probably work things out.
Other options/alternatives to save your home.
If you have come to the conclusion that you just can make your current mortgage payments, you have several options to consider. There are several options that your lender may offer you if you miss a payment and want to avoid foreclosure:
A revised repayment plan. If you suffer a short-term financial setback (expensive car repairs, a medical emergency), your lender may provide some flexibility by agreeing to let you pay off your deficiency in several installments over the next several months.
Loan modification. Many mortgage servicers can adjust the terms of your loan -- most often by lengthening out the amortization schedule of your loan, lowering the interest rate or rolling the deficiency into your loan and reamortizing the new balance, all in an effort to bring your loan current. No lender wants a mortgage in default.
Short sale. The subject of this site, the lender may allow you to sell your home for less than the outstanding loan amount, takes the proceeds and forgive you of any remaining debt.
Short refinance. The lender may release you of your existing debt and refinance the outstanding balance into a new loan.
Refinance with a "private money mortgage" loan. You may not like the high rates and fees for this type of loan, one from a private lender, but it may allow you to buy time to sell your home in an orderly fashion and avoid default or foreclosure.
For More information on short sales please visit my website http://www.ExitShortSales.com or email me at jules@julesYates.com
As for buying a foreclosure
There is a lot of information out there about buying foreclosed homes and some of it is true and a lot of it is just plain false. I will try to clear up some of the basic misconceptions about foreclosure properties:
First let's get familiar with the basics. Foreclosure property or bank owned property (now owned due to foreclosure) is referred to in the business as "Real Estate Owned" (a REO property). At this point the home is no longer in foreclosure as the bank (or lender) is the title holder.
Properties that are still in possession of a homeowner facing foreclosure is known as a "Pre-foreclosure property" or possibly a "Short-Sale". Many investors look for these distressed properties as many times they can be purchased for less than the current market value. Are there deals out there? Yes there are, but you need to be aware of what to expect when looking at REO properties:
1. WARRANTY - You will be buying a home "as-is" with no warranty.
2. COINDITION - Rarely is there any information available about the previous owner or the condition of the home.
3. UTILITIES - When looking at these homes the utilities will usually be disconnected as lenders do not want to pay high utility bills
4. FREEZE DAMAGE - If you purchase a home that went into foreclosure during the winter months, you need to have the home inspected as often times there can be freeze damage, even if the property was supposedly winterized.
5. FINANCING - In many cases your financing options will be limited as many of the properties will not qualify for many government programs (FHA, RD, VA, etc.) as there may be guidelines that the property must meet.
6. INSPECTION - When a property is appraised it may require you to put the utilities in your name (prior to ownership) so that a proper inspection may be done. Also the appraisal may require you to have the utilities on as well. If it is in the winter you may be required to pay to have the home de-winterized and then re-winterized for the inspection. Rarely will these costs be covered by the seller.
7. CASH BUYERS - If you are a cash buyer or you qualify for conventional financing, the inspections, etc may be optional. Consult your real estate professional for advice.
COMMON MYTHS
1. Homes can be purchased for pennies on the dollar
While there are often some very good deals, rarely will a lender sell a property at a significantly reduced price. Generally you can expect to save around 10-20% on average. An experienced REALTOR can help you find the best deals out there.
2. All REO properties are in poor condition
Although many REO properties are in need of repair, others are in like new condition. Again an experienced REALTOR can help you find the best properties out there.
3. You should contact the banks directly and ask about their REO inventory
Most larger lenders hire a licensed professional to market their property. Your best source for bank owned (REO) properties is a local REALTORÒ who specializes in REO properties
4. You can not get 100% financing on bank owned properties
If you (and the home) qualify for certain government programs you may be able to purchase a REO property with no money down. In fact there are several programs which are available for those who make less than $71,750 (for a family of 4 in Grand Traverse County) or $50,250 if you are single. Ask your REALTOR to recommend a lender who specializes in these programs.
5. I can't but a home with little or nothing down if the property needs repairs
There are certain government programs available for homes in need of repair (or that won't qualify for other programs). These special loan programs will require the property to be repaired after closing by a licensed professional. The amount of the repairs will be added to the loan amount so you will need to qualify for the purchase price PLUS the cost of the repairs. Consult your REALTOR for more information.
6. I have to pay to sign up on special websites to get list of foreclosure properties
No you do not. Your REALTOR can easily provide you with a list of bank owned properties. Ask to be set up on an automated email so you find out about the properties as they are entered in the MLS.
7. The market is still falling so I should wait to buy a home
Absolutely not. While the market may not have bottomed out, timing the market is a challenging task as each market is different and the statistics for each type of property (single family, vacant land, waterfront, etc.) is also different. Also interest rates are at record lows and as long as you are going to hold your property for several years you should be in a great equity position once the market does correct itself and it eventually will.
If you wait, interest rates may go up, financing option may change and prices may increase. Remember if you know we hit bottom and so will the rest of the world. When that happens sellers will be less flexible and the deals will evaporate fast.
