Mortgages, foreclosures and short sales are taken in a single breath nowadays.
In fact all three are interconnected.
Whenever a buyer of a real estate property is behind his mortgage payments and is unable to pay, the property comes for foreclosure.
Here the lender occupies the property as collateral for the mortgage. To prevent foreclosure a borrower will try to minimize his loss and short sale the property.
In this section we will try to understand about foreclosure, its advantages and disadvantages and if it can be avoided.
A Foreclosed home is one where the borrower is unable to pay mortgages as a result the lender evicts the borrowers from the property and repossess the same. Most often the borrowers themselves abandon the property. Foreclosed properties are often sold via auctions.
Life is tough and there are times when you are surprised by some unanticipated financial problems, un foreseen medical expenditure, un expected lay off, less than cordial divorce and maybe death too. As a result you lag in your mortgage payments and eventually reach the state where the lender possesses your home.
Once you miss making payments for your mortgage, you are on the path to a foreclosure. The way it works is:
There are two types of foreclosures:
Judicial foreclosure: When a lender files a civil case against the borrower and the court handles the entire process of foreclosure, it is called judicial foreclosure. In these cases if the owner is unable to pay the mortgage by a specific date, the court will award the house to the lender; and no auction is needed.
Non Judicial Foreclosure: Here a lender is at liberty to advertise and sell the property in an auction without any court interference but following specified guidelines of the state. This foreclosure is also called statutory foreclosure. This kind of foreclosure is possible only when a deed of trust is signed between the lender and the borrower during the time of mortgage.
You should know that when you buy foreclosed property you will become responsible for the past property dues too. And the property laws differ from state to state and hence you should be in the know of the rules before you proceed to buy a foreclosed home at an auction.
They say every cloud has a silver lining and the great economic depression of this century in the US has been a silver lining for a few. With foreclosures almost becoming a norm in every neighborhood, some buyers have been able to use it to their advantage and buy property at great prices because of short sales.
When you buy real estate for prices which are far lesser than the mortgage value, then short sale is said to have occurred. This is advantageous to both buyers and sellers because buyers enjoy a good price while sellers will be able to cut their losses moderately, a preferred option in comparison to been labeled default. This is one of the options that some house owners take to prevent their credit scores from falling due to foreclosure.
Either house owners themselves or the lenders who are still burdened by the mortgage after foreclosure can short sale a property. It takes a while for results to be seen and to make any profit from a short sale.
It is a time taking process unlike a traditional house sale. The lender should agree to the short sale amount and with the banks overwhelmed with foreclosures, the time constraint is more right now.
It is definitely enticing enough to buy a property of your own at affordable price and short sales is one way of doing it. But there are a few common mistakes which you should avoid to actually benefit.
Sometimes spiteful foreclosure property owners damage the property intentionally. Though most often neglect, vacancy and theft leave the property in dire state. Hence, always evaluate the property before investing.
Call in specialized inspectors to inspect the property for problems like mold, termites, cracked pipes etc. have an estimate of the costs involved for renovation of the property.
Ensure that the property is not violating any rules of the land and doesn’t have any unapproved renovations. Often bank owned properties are not subject to disclosures so you need to do your research to be safe.
Just because you love a property don’t let sensible thinking fly out of the window. It is crucial that you inspect the house in person and not overlook any issue which might later spearhead a host of other issues.
Foreclosure and short sale are the same in the broader sense because in either case the home owner loses his home. Yet, there are differences with respect to the time line and other factors.
The table below will attempt to clear the fog over these interrelated yet different methods.
|· Defaulting borrower||· Unable to pay mortgage, hence to minimize losses and keep foreclosure at bay.|
|· short||· It is a long drawn procedure.|
|· Lender||· house owner|
How are they sold
|· By auction at a trustee sale||· Through a realtor|
|· Drops by 200- 400 points||· Drops only 50-150 points|
|· Must be reported||· Not necessary to report|
|· Can buy only after 5 years with certain restrictions.||· Can buy immediately|
|· Lender||· House owner|
|· Comparatively less||· extensive|
Owning a home is important but keeping foreclosure away from your profile is even more important. These steps are a few ways of doing that.
Though the overall scene is gloomy for most, there are some who can make hay when the sun shines by buying the foreclosed properties at really low prices. Here below are some tips on how to buy a foreclosure:
Google is always there to show the way; though the best way to know about units in your locality would be to contact an agent who specializes in foreclosures. This step is crucial because foreclosure sales are different from routine real estate sales.
Next you can look out for legal notice in the newspaper or foreclosure ads from VA and federal Housing Association or FHA. County courthouses are other options that offer information on the foreclosures in your region.
To own a foreclosed home can be a great move or a terrible mistake. You can never be too sure when you are buying a property that is up for foreclosure. Take your time to gather as much knowledge as possible before you decide. Do not scrimp on the inspection, because this is what will save you thousands later. Seek professional help to make the right decision.