Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on the mortgage payments and the lender files a public default notice, called a Notice of Default or Lis Pendens.
Next, the lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction. Properties repossessed by the lender are also known as bank-owned or REO properties (Real Estate Owned by the lender).
Many buyers associate buying a foreclosure with getting a steal of a deal. This can be true, but there are also potential pitfalls. The pros and cons of buying a home involved in foreclosure vary and you should proceed cautiously.
- Bank is motivated to get property sold and will negotiate price, down payment, closing costs, escrow length, etc.
- Title will be clear; buyer will not take on any liens, mortgage or back taxes of prior owners.
- Inspections and mortgage financing are allowed within normal due diligence/contingency period.
- House will be vacant.
- Property will usually be listed on MLS; bank will pay real estate agent's commission.
- REO sales close within a normal escrow period of time.
- Bank will not typically agree to do any repairs; as-is sale.
- Bank will usually require additional paperwork.
For more information about buying a Foreclosure please contact us.
A short sale occurs when a property is sold and the lender agrees to accept a discounted payoff, meaning the lender will release the lien that is secured to the property upon receipt of less money than is actually owed. For example, if the unpaid mortgage balance is $100,000 and a property sells for $90,000 under a short sale, the lender might accept $90,000 as payment in full.
When buying a short sale property, the buyer will negotiate the purchase price of the property with the owner. Once the two parties come to an agreeable price, the owner of the property will submit it to the mortgage lender asking the lender to accept the lesser amount as full payment on the mortgage. This process can be very drawn out, and many times the purchase price won’t be agreeable to the lender.
The greatest negative to buying a short sale property is that the seller has not typically been given any indication by the bank as to what amount is acceptable for payoff, and it often takes 4 to 12 months for an answer from the bank as to whether they will accept or reject the offer amount.
The greatest positive to purchasing a short sale home is that you can usually get an exceptional value. For more information about buying a Short Sale property or selling your house as a Short Sale, please contact us.
A HUD home is a 1-to-4 unit residential property acquired by Housing and Urban Development (HUD) as a result of a foreclosure action on an FHA-insured mortgage. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim.
Almost anyone can buy a HUD property. If you have the cash or can qualify for a loan you may buy a HUD home. HUD homes are initially offered to owner-occupant purchasers. Following the priority period for owner occupants, unsold properties are available to all buyers including investors.
HUD homes are sold "as-is," so when the buyer signs on the dotted line, he is agreeing to purchase the home whatever its condition. HUD requires that the homes sold be occupied by the new buyers for at least 12 months. For those who are intending to purchase the home as their primary residence, this is usually not a problem.
There are several benefits to purchasing a HUD home. HUD pays some of the closing costs, which could potentially save you thousands of dollars. Frequently, you can move in more quickly if you purchase a HUD home eligible for an FHA-insured mortgage because it has already been appraised, unlike many foreclosures and other distressed properties. HUD homes may also be eligible for repair loans that are built into the mortgage, and buyers may qualify for down payments of only three percent. For more information about buying a HUD Homes please contact us or visit www.hudpemco.com or HUDHomesStore.com.