These are properties that have been acquired by mortgage lenders because the owners have defaulted on the loan payments. The lender or "mortgagee" takes the property that was pledged as collateral for the loan when the payments are behind (that is, when the payments are "in arrears" or "delinquent" and the owners are said to be "in default"). Lenders must follow the state laws where the property is located. Owners default on loan payments for a variety of reasons including divorce, illness, death of a spouse, and loss of employment. Lenders try to work out some kind of resolution with the owners to make up the payments in a process called "loss mitigation." This period is referred to as "preforeclosure." If efforts to work out a correction for the problem do not succeed, the lender will generally initiate foreclosure procedures after three months of non-payment.
Another party may offer to solve the problem by buying the property from the owner during preforeclosure, or from the lender at time of the public foreclosure sale, or afterwards. This presents an opportunity for savvy investors and prospective home owners looking for bargains. Foreclosure properties represent an exciting way to buy real estate because they can be purchased at discount prices, typically between 10% to 50% (or more) below market value. These discount prices are possible because the sellers, which can be the borrowers, the mortgage lender, or one of several government agencies, are motivated to sell as quickly as possible to avoid further losses. As an owner-occupant buyer, you can purchase a foreclosure as your home and enjoy instant equity. As an investor, you can buy foreclosures for rental or resale with built-in profit margins.
Q. How Can I Prevent Foreclosure on My Home
If you are having trouble making your monthly mortgage payments, you may be able to protect your home, but you must act immediately. Your action may prevent the loss of your home through foreclosure. This publication will give you an overview of your options to avoid foreclosure, but it is only the beginning. If you are in serious financial difficulty, you should seek professional assistance and/or legal counsel to best protect your investment and your home.
The very first thing you must do is call your mortgage lender. Mortgage lenders are NOT in business to foreclose on property. They want to work with you and help you find a way to keep your home. The longer you wait, the more difficult this will be. If you are three months behind in your mortgage payments and the lender has not heard from you, the company will feel justified in pursuing foreclosure. It will assume that you do not intend to pay. DO NOT AVOID YOUR MORTGAGE LENDER. Take action right away to save your home and your credit record.
If your lender does not have an office in your area, check your loan papers for a toll-free long-distance telephone number. If there is no toll-free number, check to see if the company will accept a collect call from you (their borrower). If a collect call will not be accepted, go ahead and pay for the call yourself - this call is important.
Q. What Should I do Before I Call or Visit
Be ready to discuss your problem honestly and in detail. Your lender needs complete information in order to help you. Think about the questions you may be asked and make notes to help you answer them. It will impress your lender that you are prepared and sincere.
Request a copy of Getting Out of Debt, Virginia Cooperative Extension publication 354-027, from your local Extension office or off the Web at www.vt.edu. It will help you prepare information for the lender and contains many useful suggestions for dealing with financial difficulties.
Q. What Can My Lender Do To Help?
There are many different ways in which your lender might be able to help you. Generally each case is considered on an individual basis.
DEBT COUNSELING - Most often, the first way the lender will help is to look at all your outstanding debt to see if any of it can be restructured or consolidated. Mortgage payments usually are the last payment a person will let slide, so when you start having trouble making your mortgage payments, it is likely that you are experiencing difficulty with your other payments as well. Your lender can help you make a spending plan and structure a repayment plan.
REWORK (RECAST) THE MORTGAGE - If you have some equity in your home, it may be possible to rework your loan to lower the monthly payments for an extended period of time. The past-due amount could be added into the new loan.
GRACE PERIOD - If you are working with the lender, you will be given extra time, in most cases, to get your problem under control. Otherwise, if the lender has not heard from you, the company will usually begin foreclosure when you are three months behind in your payments.
SELL THE HOME - If your problem is so serious that it can not be resolved in a reasonable amount of time, it may be necessary for you to sell the home and find one that is more financially manageable. It may be possible to sell the home and pay off both the mortgage balance and your delinquent debt, and thus avoid foreclosure. Work closely with your lender to allow a reasonable time to sell the home. A poor real estate market will limit this option.
CHARITABLE ORGANIZATIONS and/or PUBLIC ASSISTANCE - Some charitable organizations and public assistance groups may be able to help you make a payment or two so that you can catch up.
SIGN THE HOME OVER TO THE LENDER (DEED in LIEU of FORECLOSURE) - This would be considered a voluntary foreclosure and could damage your credit record the same as an involuntary foreclosure. However, you can avoid the public notice of a foreclosure sale. The lender will work with a real estate agent to complete the sale. You lose your home, but will not be held liable if the home sells below the debt amount.
BANKRUPTCY - This is the last resort, if your home cannot be sold. It may save your home, but it will severely damage your credit record for at least seven years and you will lose control of your finances. Foreclosure proceedings are usually stopped until bankruptcy is resolved.
Q. Where and how to begin foreclosure investments?
Foreclosure property investment can be a fortune provider if you take a step-by-step approach. It begins with expanding your awareness to understanding the underlying realities and some critical details. Gaining access to a comprehensive online foreclosure listings can be the first step to finding suitable foreclosure homes you can invest on.
Q. Basics of pre-foreclosure investing that I need to be aware of?
You need to know that most foreclosure homes come in 'as is' condition which can be brought into negotiating a considerable discount from the seller.
In case of pre-foreclosures the debt on the property remains till it is sold at the auction, which means you need to settle the debts, trusts, mortgages, tax liens and judgments before you buy the property. It is advisable that you gather actual information about the physical and financial position of the property before investing on them.
Only individuals, who own the title to the property can sell the property, ensure if there is more than one owner and if they have the consent to sell the property prior to any negotiation on the deal.
Q. Where can I find HUD listings?
The Department of Housing and Urban Development (HUD) acquires properties foreclosed on Federal Housing Administration (FHA) - insured mortgages from lenders. These properties generally referred to as HUD repossessions are offered to the public for sale through asset management companies contracted by HUD. You may find these properties listed in the HUD website and advertised in local newspapers.
Q. How can I buy a HUD property/ repossessions?
You can place your bid to buy HUD properties through a registered real estate agent who may submit your bid using the HUD's electronic bidding process. When the bidding period ends the bid is granted to the highest bid offer.
If your bid wins HUD will notify you through your real estate agent. You will be provided 48 hours to prepare and submit the sales contract. Once approved HUD usually offers a schedule of 30-60 days to make the settlement.
