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What is Foreclosure

what-is-foreclosure
A foreclosure is when the homeowner fails to make their mortgage payments and the lender files a legal action to repossess the property. The process of foreclosure begins with what is called a Notice of Default. This notice alerts the homeowner that they are not making their mortgage payments on time, so they could be at risk of losing their home to foreclosure if they do not take action right away. The lender will give the borrower 90 days from this date to make up all missed payments.

Reasons why homeowners go into foreclosure

Not being able to afford what is owed on the mortgage

Job loss

A reason why some people cannot pay their monthly mortgage payments is that they lose their job. It can take a while to find a new job, and without a job, a person does not have any income coming in to pay for their mortgage.

Medical issues

Another reason why homeowners may go into foreclosure is because of medical issues. For example, if someone has a serious illness and cannot work for what they need to make on their mortgage payment, then it is hard to keep up with what the monthly payments are when there isn’t any income coming in.

Don't want the house anymore

Some people do not want to continue to pay their mortgage every month. They may decide to stop making the payments and go into foreclosure instead of continuing to pay what is owed. Some people let their homes foreclose on purpose. I would not recommend doing this.

Why do some homeowners choose to foreclose

Some homeowners have an adjustable-rate mortgage, and if there is an increase in interest, the monthly mortgage payments can go up. Some homeowners intentionally miss their mortgage payments. The homeowners have no financial drive to continue to pay their mortgage. When the amount owed on the mortgage is more than the home’s actual value, that home is “underwater.” Some homeowners don’t pay their mortgage and just leave it up to the lender to deal with it.

Foreclosure prevention tips

stop-foreclosure

The most important thing to do is watch what you are doing with your money. You should be trying to save what you can. Do not waste money on things you do not need, and focus on paying your mortgage.
Making your mortgage payments can be hard, but it can be easier if you save your money, keep a budget, and plan. If you are having a hard time paying your mortgage, but you are making enough money, you could try and make a budget. There are a lot of different ways to avoid foreclosure.

How to avoid getting into a foreclosure situation

Know what you are getting into when you buy a house, which can help you avoid foreclosure. Make sure the monthly mortgage payments fit your income each month so you minimize the chance of missing your monthly payments. You could also try working out a payment plan with the lender if you have already missed more than three months’ worth of payments. You should contact the lender right away, or it may get too late for anything else to happen before a judge makes their decision about what happens next in regards to your home’s future ownership status.

Foreclosure varies through states

There are two types of foreclosures, which vary by what state you are in. There are Judicial foreclosure and non-judicial foreclosure. Judicial foreclosure is when the foreclosure goes through the court, and the homeowner can contest the foreclosure. Non-judicial foreclosure does not need any court action, and this process is different from state to state.

Foreclosure Process

Missed mortgage payments

Every process of foreclosure starts the same way, with the homeowner missing their payments. The foreclosure process can be difficult and expensive for lenders, so most lenders want to avoid foreclosure. Most lenders are willing to delay payments or require less on each monthly mortgage payment.

Notice of default

The lender will give the homeowner what is called a Notice of Default. This notice tells the homeowner what they need to do to get back on track and avoid foreclosure, such as making payments or agreeing with their monthly payment for that month going forward. This notice is what the lender uses to track what they are owed and what payments they have received. The notice lets the homeowner know that they will proceed with legal action if the debt is not paid.

Short Sale

A short sale is another option instead of foreclosure. A short sale is when the homeowner sells the house for less than what is owed on the mortgage. The property buyer is a third party, and all of the money is given to the lender. The lender has to permit to go through with a short sale.

Foreclosure

Once the lender records the public notice, the foreclosure process begins. Usually, when the foreclosure process begins, the homeowner has 90 days to act. They could sell the property through a short sale if the lender agrees. They can pay the outstanding balance of the loan. You could sell the home if there is enough equity to pay off the loan. Or you could sign The Deed in Lieu of Foreclosure Option.

Auction

The trustee or mortgage investor will put up the house for auction, also called a foreclosure sale. The foreclosure sale is open to the public and can be online, at a convention center, or the county courthouse. The minimum bid is mostly set at the loan cost, and the home is obviously sold to the highest bidder. If the home is bought at auction, the homeowner must move out and the new homeowner has the right to do what they please with the house. If the home is not bought at auction, then the property goes back to the bank.

Trying to buy a foreclosed home

Where to find a foreclosure

You can find a foreclosure by going through what is called Foreclosure Listings. There are many websites and companies that put up what foreclosures they have, what the price will be, and what condition it is in. You can also find foreclosures in local newspapers.

Different ways to buy a foreclosure

Buying a pre-foreclosed home

A pre-foreclosure is when the lender has let the borrowers know that they are in default before the house is put up for auction. During this time, the borrower can sell their home to try to avoid an actual foreclosure. They are usually listed in city and county courthouse buildings.

Buy a short sale property

If the lender agrees to let the borrower sell the house for less than what is owed on the mortgage, that is considered a short sale. You can get a short-sale home for pretty cheap, although the home might not be in the best condition. All of the money from the short sale goes to the lender.

Buy bank-owned property

Bank-owned property is called REO, and it stands for Real Estate Owned. These are properties that did not sell at auction, so they went back to the bank. Some online sources have listings of bank-owned properties that can be searched by zip code, city, or state.

Risk of buying foreclosures

The best thing about buying a foreclosure is the price of the home. Most foreclosed homes are sold below their market value, but it isn’t always worth the price. Most people who are going through the foreclosure process are not keeping up with their monthly mortgage payments. That means that they are also probably not keeping up on regular upkeep. They probably can not afford essential repairs. Some homeowners who are about to get the house taken, start to remove appliances and sometimes even vandalize the home. If this is the case, then buying the home would probably not be worth it. 

Buying a foreclosed home can also be a timely process. The reason for this is all of the extra paperwork. Some banks also get overflowed with foreclosures and can take up to 3 months to respond to your offer. The last thing that is bad about trying to buy a foreclosure is the competition. It is a competition with other potential buyers, like experienced house flippers and investors. When a foreclosed home is priced substantially lower than other homes in the area, a bidding war usually breaks out.

How to sell a foreclosure

You usually do not want your home to go through the foreclosure process. You lose a lot of money, and your credit score also shoots up. A way to save your credit score and a way to cash out is to sell your home. If your home is about to be foreclosed, and you want to sell your house fast, you can sell with an investor.

Foreclosure

Again foreclosure is when you fail to pay your monthly mortgage on your home, and the bank files legal action to take the property back. There is a whole process you go through when going through a foreclosure. There are different ways to avoid foreclosure, and there are other ways to buy a foreclosed home.

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