Foreclosure 101

Everybody wants to buy a foreclosure because those are the best deals right?   Lets take a couple of minutes to understand what we mean by a foreclosure.

 

Foreclosure is what happens when a creditor, usually a bank, but it might be a Home Owners Association or a private individual, goes to court and forcibly takes possession of a property in order to get their money back.  The law mandates that the home owner be given proper opportunity to retain the property by working out a deal with the creditor.  The home owner may pay off the arrears, agree a loan modification, or sell the property via a short sale.

 

If none of this works the court will eventually rule that the property be sold at a foreclosure auction.  Papers will be served, a sale debt set, and the owners will be evicted.  If there is equity in the property (it's worth more than the bank is owed) it could be bought by a third party, but in most cases today, ownership of the property reverts to the bank.  At this point the property has been foreclosed.

 

It is possible to buy a property at a foreclosure sale, now done on line and no longer at the courthouse steps, but I really really don't recommend it unless you really really know what you are doing.

 

That leaves us with 2 options.

 

You can buy a property in pre foreclosure.  This means that the owner has stopped paying the mortgage and the lender is in the process of legally seizing it.  In Florida this process can take anywhere from a few months to several years, depending on how vigorously the owner defends their property and how good a lawyer they hired.

 

Today nearly all pre foreclosure sales are on properties that are upside down (underwater) because the mortgage is more than the property is worth so the seller is attempting a Short Sale.  This where the bank forgives some of the mortgage amount in order to facilitate the sale and avoid having to foreclose, which in most cases they prefer.

 

All short sale properties must be listed on the Multiple Listing Service (MLS) and must be identified as such.

 

Once the lender forecloses the property it becomes Bank Owned or in their terminology, Real Estate Owned (REO).  These are the most motivated sellers on the planet because they have to sell the property fast and they are always very aggressively priced.  This is where you look if you want a real bargain, but you must be prepared for a level of frustration.

 

Once again all REOs must be listed on the MLS and must be identified as being Bank Owned.