Foreclosure – The process of terminating a debtor’s right to a property as a result of default on a mortgage or other lien. It typically involves the forced sale of the property at public auction, and the proceeds are used to repay the debt. ***Courtesy of Plain English Real Estate Dictionary by Marlyss A. Bird.
The foreclosure process begins when a homeowner/borrower stops paying loan payments and the lender files a public default notice giving the homeowner/borrower time to payoff the default amount in order to reinstate the loan during a specified grace period known as pre-foreclosure.
One option for the homeowner/borrower during the pre-foreclosure period is to sell the property to a third party allowing the homeowner/borrower to pay off the loan and avoid the foreclosure process and damage to their credit.
Another option for the homeowner/borrower during the pre-foreclosure period is to sign a “deed in lieu of foreclosure” agreement, giving the lender ownership of the property.
At the end of the pre-foreclosure period, the lender automatically takes ownership of the property, either offering the property for public auction or putting it on the market for re-sale.
According to Janet Costa, Realtor for Century 21 M&M Modesto, “If you are interested in buying a foreclosed home, you need information on the area’s market trends; average sales price, property valuation, neighborhood demographics and ‘comps’ for homes you are thinking of purchasing.”
“Buyer beware, if you buy a foreclosed home, you will most likely be buying the former homeowners problems and you need an experienced agent to walk you through the process from beginning to end.” says Janet Costa.
The following is a list of potential risks associated with the purchase of a foreclosure:
- In a private sale, the former owner may not disclose accurate information; how much is owed on mortgage or property taxes, unrecorded mortgages, court judgments and tax liens.
- Since you usually cannot inspect a foreclosed property prior to auction there may be underlying maintenance problems; leaky roof, dry rotted structure, bug and pest infestations.
- The property may be stripped or vandalized; missing appliances, cabinets, light fixtures, broken windows, dead or missing landscaping, even concrete poured down drains.
- The former homeowner or renter may still be living in the home with no intention of vacating and you will wait to take possession until after an eviction process.
The least risky way to purchase a foreclosure is to buy directly from a lender who got title to the property because no one bought it at auction. Here’s why:
- Any recorded or undisclosed mortgages, court judgments, or tax liens on the house are either removed from the property or disclosed prior to purchase.
- You can have a property inspected looking for hidden damage from foundation to roof; pest, structural, electrical, plumbing, etc.
- The price and terms of sale are negotiable. Lenders may make allowances for corrective work either by either reducing the price or giving credit to buyer to do the work.
“If you are considering the purchase of a foreclosed home, hire an experienced Realtor – one with years of experience negotiating these types of transactions with Bank Asset Managers”
“A word of caution, have the property thoroughly inspected and with the help of your Realtor understand what you’re getting yourself into – before you buy,” states Janet Costa, Century 21 M&M Modesto.