What happens during a foreclosure on a home?
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Depending on whether its a judicial or non judicial foreclosure will determine several post foreclosure results. A deficiency judgment can haunt you financially in many cases and the IRS will always view forgiveness of debt as income especially if the loan was a equity loan. Example, you take out a purchase money loan and write off the interest as is your right. The IRS allows this deduction but loves to get it back when the opportunity presents itself. Then a few years later for whatever reason you either refinance or you take out a 2nd. These are equity loans now and you are getting cash for something you have also deferred taxes with. This can be just such an opportunity for them to pounce on your growing headache. Your best bet is to work out a forbearance plan with the lender and either sell the home, or make timely payments and do not let the pissed off lender determine your financial fate should they be forced to repo your home. You signed documents at escrow allowing them to do this, what can happen next can have horrible long term affects if you don't resolve this prior to the trustees sale.
You will be responsible for the difference including any attorney's fees, court costs, etc.,
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At auction, an opening bid on the property is set by the foreclosing lender. This opening bid is usually equal to the outstanding loan balance, interest accrued, and any additional fees and attorney fees associated with the Trustee Sale. If there are no bids higher than the opening bid, the property will be purchased by the attorney conducting the sale, for the lender.
If this occurs, and the opening bid is not met, the property is deemed a REO or Real Estate Owned. This typically occurs because many of the properties up for sale at foreclosure auctions are worth less than the total amount owed to the bank or lender.
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There are three types of foreclosure auctions:
Auction with Reservation
This type of auction is fairly rare. It allows the seller to reject any offer for any reason. Most people going into foreclosure are no position to reject offers, so you're unlikely to see one of these.
Absolute Auction
In this type of auction, the seller must accept the highest bid. So, if you're the only bidder and you offer one dollar, they have to accept. I've never seen a foreclosure auctioned this way, but you'll occasionally see furniture or other personal items auctioned via the Absolute method, where no one cares how little people pay.
Minimum Bid Auction
Most foreclosures are auctioned using the Minimum Bid style. The seller defines a minimum bid, usually the total balance of the mortgages and other fees on the property. The auction opens with the minimum bid and the price goes up from there. Whoever bids the most wins.
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In real estate auctions, bidders compete with the other. The seller, along with the auction specialist, determine a comparable market value (CMV) for the house. If there are no CMVs, a minimal or reserve price may be set to begin the auction. The auction ends when the reserve price is met or exceeded. There is no reserve price (absolute auction) in a foreclosure sale, and the best bid is awarded. The house auction sale has a reserve price (restricted auction). http://www.mortgagenewsdaily.com/wiki/ho...
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