Saturday, 16 January 2016

The Process of Foreclosures: Understanding the Intricacies

Jeff Adams Real Estate
Experiencing a foreclosure first hand really impacts you. However, the intensity of the impact depends on what role you play in the process of a foreclosure. Whether you are new to the term, have experienced it before, involved in the legal process or feel that you may soon face a foreclosure, you need to understand how the process takes place because, although it may sound like a heavy legal term, foreclosures are, in fact, easy to understand.

What is a Foreclosure?
A foreclosure is a legal process that is set into motion when the owner of a property cannot make payments of the principal and/or interest towards his loan. Thus, the property is then seized and sold so that the lender can recover the amount that was borrowed.

When do Foreclosures occur?
The first step leading to a foreclosure is the borrower not being able to return to the lender his loan amount. That’s when a foreclosure occurs and the process begins.

The Stages of Foreclosure
The process of a foreclosure moves in different stages, each of which is mentioned below.

1. When a borrower misses his payments for three or more months in a row, the lender sends him an NOD (Notice of Default) stating that his/her property shall face foreclosure on account of the non repayment of the loan. The lender gives the borrower a fixed brief time period allowing him to make a quick payment. If the borrower fails to do so, a foreclosure is inevitable.

2. The owner of the property, that is, the borrower, then receives a Notice of Sale stating the date of the foreclosure sale of the property. This notice is also placed on the property and in the local newspapers for a short span of time, informing people about the foreclosure.

3. Those who are made aware of the foreclosure can take part in the public auction if interested. Most people find it profitable to buy a foreclosed home because the property is priced at a much lower rate than its market value.

4. The opening bid for the auction is set by the lender. He takes into account the loan balance, interest, attorney fees and any other additional expenditure he may have incurred in the process of the foreclosure.

5. The public auction then occurs and bids are placed and the property is thus acquired by the highest bidder.

Buying a Foreclosed Property
While the process of a foreclosure does sound pretty simply, buying a foreclosed property is not a very easy task. Acquiring a real estate property for a lesser rate than the market value is quite luring to many who make use of real estate as an investment, especially the big hedge fund companies, who are on the lookout for foreclosed properties to buy them for a lesser price at public auctions and sell them off later or give them up for rent them at the market value, thus, making a profit.

The factors that work in favor for the buyer are as follows:
1. Buying property at a cheaper rate
2. Using this property as an investment to make a profit

The factors that do not work in favor for the buyer are as follows:
1. The winning bid has to be paid in cash. Also, a deposit needs to be paid up front and the remainder of the amount needs to be paid in 24 hours. Thus, the winner needs to have the money at his disposal, since he cannot make payments in installments.

2. Experiencing the emotional trauma of the owner and his family losing his property with nothing left for them.

Bank Owned Properties – REOs (Real Estate Owned)
When the property that is put up for sale at a public auction is worth much less than the amount that needs to be recovered, it is difficult to find a bidder to meet the opening bid. The property, thus, doesn’t get sold and then comes to belong to the bank, i.e. the lending source. These properties are deemed as REOs (Real Estate Owned).

How to Avoid Foreclosures?
If you are at the receiving end of the foreclosure process and are facing the loss of your property and home, there are ways in which you can avoid your property being taken away from you.

1. Make sure that you do not quit your job, or even if you want to, do so only when you find yourself a new job to make sure you have a stable income. If you are downsized, try looking out for a new job as soon as possible.

2. If you have received a Notice of Default, you can gather up all your resources to pay off your loan and can also solicit financial help from a friend or family member.

By simply understanding what the entire process of a foreclosure, it can be used to your advantage, no matter what role you play in the entire process.


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