| |
Being a homeowner is the dream of most Americans, but many potential buyers believe that the cost of property makes it impossible. Before you give up on your dreams, take a look at the rich supply of real estate available through foreclosed properties. It just might be the way to find a home that fits your needs as well as your pocketbook.
At the same time, there are some risks in buying a foreclosed home. The property may need a great deal of repair, or you may be taking on the obligations of big back-taxes along with the big back yard. The most important thing to remember when buying foreclosed property is to be informed. Ask questions, do research, contact county officials or professional experts and make sure you understand the entire picture.
These are properties that have been foreclosed on by property owners because the homebuyer has defaulted on loan payments. The property owners might be the borrower, lender, or government agencies such as U.S. Department of Housing and Urban Development (HUD) or the U.S. Department of Veterans Affairs (VA). They want to sell the properties quickly. Here’s why:
Let’s say the property owner is a lender. Lenders are usually banks, because part of a bank’s business is to extend mortgages to people who want to buy homes. In other words, a mortgage is essentially a loan that a bank offers in order to make it possible to have the large amount of money it takes to purchase a home. The bank is essentially the property owner until the mortgage is entirely paid off. If the homebuyer does not pay the mortgage, it means they are not paying the bank their loan payments.
When this happens, the bank begins to lose money, as they are counting on those loan payments, so it needs to make a business decision to put an end to this loss. Because homebuyers sometimes fall behind on loan payments for unexpected circumstances such as divorce, illness and unemployment, banks often try to work out a payment plan. This is to the bank’s advantage, as in many cases it is cheaper for them to adjust the loan payments then to foreclose on the property. Though the rules vary from state to state, most banks will begin foreclosure procedures after a few months if the homeowner continues to default on the loan once a new payment plan is offered.
Banks are not in the business of managing property - they are in the business of collecting and investing money. Therefore, in the majority of foreclosures, banks want to sell the house as quickly as possible. This is the case for other lenders and government agencies, as well. This is why they want to sell the property at a low price: the only way to reduce the loss they experienced from the unpaid loans or mortgage, and to keep them from bearing the cost of maintaining a foreclosed property, is to find another homebuyer.
A foreclosure property may be for sale at three different stages: preforeclosure, auction, and real estate owned (REO). The following definitions introduce these stages. Details on what each stage means to a potential buyer follow these definitions.
Stage One: Pre-foreclosure...The term “pre-foreclosure” is a little confusing, as it represents the stage immediately after the lender or bank has filed for foreclosure, but before the property is put up for auction or made available for sale by the lender. In this stage, the homebuyer can try to keep the house by paying off back payments. But, the homebuyer may also want to sell the property at a reduced price, which creates a good opportunity for a new buyer.
Stage Two: Auction...If the homebuyer cannot pay off the back payments and does not sell the property, the property becomes available for sale at a public auction.
Stage Three: Real Estate Owned (REO)...If the property is not sold at the auction, it reverts back to the lender and becomes a Real Estate Owned (REO) property.
|
|
|
|
|
|
|
