Foreclosures
Understanding Foreclosure
It’s an unfortunate reality, but when the economy slows, property purchasing declines, and more property enters the foreclosure market. Other factors include high interest rates and creative but unsound financing arrangements.
In the foreclosure process, circumstances may seem bleak, but remember: in most cases lenders would rather receive payments than receive a property due to a foreclosure. Lenders are in the money business, not the real estate business, and in many cases will try to make alternate arrangements with property owners who are experiencing financial difficulty.
If the mortgage loan default is due to a failing to make a balloon payment, the lender is entitled to require full payment on the entire outstanding mortgage amount as the only way to cure the default. If the default is not cured, the lender may instruct the trustee to sell the property at a public auction.
In cases of a public sale, a notice of sale must be published in a local newspaper and posted in a public place—usually the local courthouse— for three consecutive weeks. Once the notice of sale has been recorded, the property owner has until 5 days prior to the published sale date to bring the loan current.
If the owner is able to cure the default by paying the amount due, the deed of trust will be reinstated and regular monthly payments will continue as before, and it may be possible for the property owner to work out a postponement on the sale with the lender. If no postponement is reached, the property is listed for sale.
At the sale, buyers must pay the full amount of their bid with cash, cashier's check or other instrument acceptable to the trustee. some lenders may "credit bid" up to the amount of the obligation being foreclosed upon.
Buying foreclosed properties has increased in popularity lately. However, there are pitfalls that can ensnare the careless investor. Foreclosed properties are very likely to be burdened with overdue taxes, liens and clouded titles.
A buyer should do their diligence and visit a local title company for information concerning any potential outstanding liens and encumbrances. Title insurance may or may not be available following a foreclosure sale and various exceptions may be included in any title insurance policy issued to a buyer of a foreclosed property. In short, caveat emptor—buyer beware!
