FORECLOSURE ACTIVITY RISES AGAIN!
More than 74,000 homes were lost to bank repossessions during the month, up from 67,000 in January, according to a regular monthly report from RealtyTrac, the online marketer of foreclosed properties. Nearly 1.2 million have been lost since the foreclosure crisis hit.
Foreclosure rates continue to increase nationwide, with California, Nevada, Florida and Arizona still leading the rest of the country with home loans that have soured since the housing market began its slowdown almost 18 months ago.
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Foreclosures - Q & A
Q: What is Mortgage Foreclosure?
A: When most people purchase real property, they do not have enough money to simply purchase the property outright. In order to make the purchase, they are required to borrow money from a lender. In exchange for lending the money, the lender will hold a lien against the property. If the borrower does not make the required payments, then the loan goes into default and the lender can exercise the lien against the property, in order to take legal possession of the property for the purpose of selling the property to pay off the borrower's loan. This process is called mortgage foreclosure.
| Q: | How does a home go into foreclosure? |
| A: | Foreclosure proceedings usually begin after a borrower has skipped three mortgage payments. The lender will record a notice of default against the property. Unless the debt is satisfied, the lender will foreclose on the mortgage and proceed to set up a trustee sale. |
| Q: | Are foreclosures an option? |
| A: | A foreclosure property is a home that has been repossessed by the lender because the owners failed to pay the mortgage. Thousands of homes end up in foreclosure every year. Economic conditions affect the number of foreclosures, too. Many people lose their homes due to job loss, credit problems or unexpected expenses.
It is wise to be cautious when considering a foreclosure. Many experts, in fact, advise inexperienced buyers to hire an expert to take them through the process. It is important to have the house thoroughly inspected and to be sure that any liens, undisclosed mortgages or court judgements are cleared or at least disclosed. |
| Q: | What are problems with buying foreclosures? |
| A: | Buying directly at a legal foreclosure sale is risky and dangerous. It is strictly caveat emptor ("Let the buyer beware").
The process has many disadvantages. There is no financing; you need cash and lots of it. The title needs to be checked before the purchase or the buyer could buy a seriously deficient title.The property's condition is not well known and an interior inspection of the property may not be possible before the sale, says Wiedemer. In addition, only estate (probate) and foreclosure sales are exempt from some states' disclosure laws. In both cases, the law protects the seller (usually an heir or financial institution) who has recently acquired the property through adverse circumstances and may have little or no direct information about it. |
| Q: | What types of foreclosure are there? |
| A: | Judicial foreclosure action is a proceeding in which a mortgagee, a trustee or another lienholder on property requests a court-supervised sale of the property to cover the unpaid balance of a delinquent debt.
Nonjudicial foreclosure is the process of selling real property under a power of sale in a mortgage or deed of trust that is in default. In such a foreclosure, however, the lender is unable to obtain a deficiency judgment, which makes some title insurance companies reluctant to issue a policy. |
| Q: | What happens at a trustee sale? |
| A: | Trustee sales are advertised in advance and require an all-cash bid. The sale is usually conducted by a sheriff, a constable or lawyer acting as trustee. This kind of sale, which usually attracts savvy investors, is not for the novice.
In a trustee sale, the lender who holds the first loan on the property starts the bidding at the amount of the loan being foreclosed. Successful bidders receive a trustee's deed. |
| Q: | How do you get financing for a foreclosure auction? |
| A: | One reason there are few bidders at foreclosure sales is that it is next to impossible to get financing for such a property. You generally need to show up with cash and lots of it, or a line of credit with your bank upon which you can draw cashier's checks. |
| Q: | How do you find government-repossessed homes? |
| A: | The U.S. Department of Housing and Urban Development acquires properties from lenders who foreclose on mortgages insured by HUD. These properties are available for sale to both homeowner-occupants and investors.
You can only purchase HUD-owned properties through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price. Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from the conventional market's 5 to 20 percent. One caution. HUD homes are sold "as is," meaning limited repairs have been made made but no structural or mechanical warranties are implied. |
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| Q: | Where can you find foreclosures? |
| A: | In most states, a foreclosure notice must be published in the legal notices section of a local newspaper where the property is located or in the nearest city. Also, foreclosure notices are usually posted on the property itself and somewhere in the city where the sale is to take place.
When a homeowner is late on three payments, the bank will record a notice of default against the property. When the owner fails to pay up, a trustee sale is held, and the property is sold to the highest bidder. The financial institution that has initiated foreclosure proceedings usually will set the bid price at the loan amount. Despite these seemingly straightforward rules, buying foreclosures is not easy as it may sound. Sophisticated investors use the technique so novices may find themselves among stiff competition. |
| Q: | Where can you find foreclosed HUD homes? |
| A: | The U.S. Department of Housing and Urban Development acquires properties from lenders who foreclose on mortgages insured by HUD. These properties are available for sale to both homeowner-occupants and investors.
You can only buy HUD-owned properties through a licensed real estate broker, whose commission will be paid by HUD. Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range 3.5 to 20 percent. Each accepted offer must be accompanied by an "earnest money" deposit equal to 5 percent of the bid price not to exceed $2,000, but not less than $500. You should be aware that HUD homes are sold "as is," meaning limited repairs have been made but no structural or mechanical warranties are implied. |
| Q: | Do you have to buy HUD homes through a realty agent? |
| A: |
You can only purchase a U.S. Department of Housing and Urban Development property through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price.
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Avoid Foreclosure - Q & A
| Q: | Can a home seller sell a home for less than its mortgage? |
| A: | This situation is known as a "short sale." Sometimes home owners can negotiate with lenders and have them split the difference between the sale price and loan amount, which still must be paid.
A short sale may be complicated if the loan has been sold to the secondary market because then the lender will have to get permission from Fannie Mae or Freddie Mac, the two major secondary-market players. If the loan was a low-down-payment mortgage with private mortgage insurance, then the lender also must involve the mortgage insurance company that insured the low-down loan. Resources: |
| Q: | How does a home go into foreclosure? |
| A: | Foreclosure proceedings usually begin after a borrower has skipped three mortgage payments. The lender will record a notice of default against the property. Unless the debt is satisfied, the lender will foreclose on the mortgage and proceed to set up a trustee sale. |
| Q: | What happens at a trustee sale? |
| A: | Trustee sales are advertised in advance and require an all-cash bid. The sale is usually conducted by a sheriff, a constable or lawyer acting as trustee. This kind of sale, which usually attracts savvy investors, is not for the novice.
In a trustee sale, the lender who holds the first loan on the property starts the bidding at the amount of the loan being foreclosed. Successful bidders receive a trustee's deed. |
| Q: | When does foreclosure begin? |
| A: | Lenders will initiate foreclosure proceedings when homeowners become delinquent in their mortgage obligations, usually after three payments are missed. The lender will then notify the buyer in writing that he or she is in default. The lender can request a trustee's sale or a judicial foreclosure, in which the property is sold at public auction.
A borrower can cure the default by paying the overdue amount and the pending payment after the notice of default is recorded, usually no later than a few days before the property's sale. Some sales allow the successful bidder to take possession immediately. If the former owner refuses to vacate the premises, the court can issue an unlawful detainer that allows the sheriff to come out and evict them. Borrowers should do everything they can to avoid foreclosure, which is one of the most damaging events that can occur in an individual's credit history. |
| Q: | How bad is a previous foreclosure on credit? |
| A: | A property foreclosure is one of the most damaging events in a borrower's credit history. In terms of the effect on credit history, a deed in lieu of foreclosure or a short sale is not as adverse an event as is a forced foreclosure. |
| Q: | Can I protect my home from creditors? |
| A: | Your state may provide you with special protection from creditors through the filing of a homestead exemption, which exempts some or all of the value of the owner's equity in the homestead from claims of unsecured creditors.
Deciding whether or not to file a homestead exemption often depends on an individual's situation. Contact your county recorder's office for details. |
