What is a Foreclosure property?
Question:
Answer:
According to The American Heritage dictionary, foreclose is defined as: 1. To deprive (a mortgagor) of the right to redeem mortgaged property, as when he has failed in his payments. Foreclosure is defined as: 1. The act of foreclosing, especially a legal proceeding by which a mortgage is foreclosed.
In layman’s terms foreclosure is when a borrower fails to make payments on his or her house and the bank takes action to protect their loan. How does foreclosure happen?
When someone buys a home they generally finance the purchase. In other words, they borrow money.
There are two parties involved in this transaction. There is a lender, also called the mortgagee and there is a borrower, also called the mortgagor. The lender loans the borrower money to purchase their home and, in turn, the borrower gives the lender a promissory note to repay the borrowed sum of money.
Now, the next step is the lender has to protect their loan amount, so they use the house as collateral.
The mortgage becomes what is called a lien on the property. That house can’t be sold with clear title until that lien is paid off. The promissory note is a promise that the borrower will pay the lender back in a timely fashion and as stipulated in the note.
Note: Some states use what are called Trust Deeds as opposed to a mortgage. This newsletter is focusing on properties with a mortgage as the lien.
When a borrower does not adhere to the terms of the agreement, meaning they don’t make their payments, the lender starts the foreclosure process in order to recoup their money. Typically, a borrower must be 90 days behind in order for the lender to the start the foreclosure process.
This means the borrower has not made payments in approximately three months. The borrower is said to be in arrears at this point. They owe the lender the 3 months of payments plus interest. The lender, under the terms of the original agreement, has the right to call the balance of the loan due immediately.
This starts the foreclosure process. If the borrower does not pay the lender the money, the house will go to public auction and will be sold to the highest bidder.
A foreclosure property is real estate on which existing loans have not been paid and the borrower demands payment. The property goes into foreclosure, which means that it is put up for sale so the proceeds of the sale can be used to repay the loans.
It may be advantageous to buy foreclosed property because you may be able to get it for less than market price. Depending on the property, the amount of the loan, and the number of people interested in buying the property, you may be able to buy the property for the amount owed even if the market value is higher.
You must be careful with buying such proerties. There may be other claims against it, and you may have to accept the property subject to other existing loans. This is not something for inexperienced investors.
you havent paid your mortgage and you are in the process of losing it
you can get a decent property for a very low cost.
it is when it was taken by the bank or someone that didnt pay their bills and gets sold at very low price
It depends on whether you're buuying it BEFORE or AFTER it is actually foreclosed-on. If it's an empty house and the mortgage holder is trying to find a final buyer, the price COULD be very attractive. But the fact that it had been a foreclosure could mean that there are problems with the property, particularly if there are indications that COs, etc are the responsiblity of the purchaser.
There is no general answer. Check each purchase before signing the contract.
Yes and no. In some cases the bank will sell them at what is owed on the loan and in those cases, you can get a really good buy. In some cases, the bank will sell them at fair market value or just a little under in order to get rid of it fast, and you may get an average deal. However, I have learned that most foreclosed properties are not in the best condition and need a lot of work. So, if you are buying at close to market value and have to put a lot into it for repairs, you won't get a good deal at all.
a Foreclosure is when a property is unable to make loan payments (defaults on the loan) the mortgage holder begins a logal process to take the colateral (the property). The foreclosure process varies from state to state so you should check with an attorney familiar with local laws. Basically there are 2 types of foreclosure, judicial and non-judicial. In mortgage states, Judicial foreclosure are used in mortgage states and non-judicial foreclosure is used deed of trust states. Sometimes both procedures are used. Check with your attorney to see what is used. You have to make the decision it is up to you. Talk with your attorney and think about what you are getting yourself into when buying a foreclosed home.
More Related Questions & Answers...