Turn on the financial news channels and the pundits are out their with the new foreclosure numbers, the levels of homes banks are carrying in the REO departments; it is up a few percentage points from last week etc..
First lets explain the whole process from the very begining. The very, very beginning is when John Homeowner is late on their very first mortgage payment. Depending on the lender they will probably charge you a late fee and everything will be ok. Not always, I know of a case where a lender started the foreclosure process on the individual the next day even though the payment was sent. Don't panic if you haven't made the mortgage payment it was eventually worked out but the lender does in some cases have the legal right to foreclose.
Foreclosure is the legal process the lender takes to take possession of the property to insure their vested interest or amount of the loan. Generally after 3 months of no loan payments the lender files a lis pendens with the local courthouse and begins the process of evicting the homeowner from the property. This process can take 6 months to 2 years depending on the court system and individual case.
During this period of time the homeowner can choose (hopefully early in the process) to place their property up for sale and sell it prior to the foreclosure if the property is worth $220,000 in the market place and the homeowner owes the bank $200,000 they sell and the foreclosure proceeding stops. If however they owe $200,000 and the property is only worth $180,000 they are short the amount it will take to close on the property or they need to take $20,000 out from other sources to close on the property or ask the bank to take the loss and help them avoid the foreclosure proceeding. This is a "Short Sale". Generally banks are pretty willing to work with distressed homeowners to get these "Short Sale" properties closed because time is money, the longer the bank has this $200,000 tied up in this foreclosure proceeding the more money they are loosing not only in court costs but in interest on being able to loan out the money. Even after the property is foreclosed the bank still needs to sell the property paying the closing costs, and they inherit a property that they have no idea what kind of condition it is in. No one told them that John Homeowner had 40 cats and a hail damaged roof that leaks when it rains.
When the property is owned by the bank and has been foreclosed it is known as a R.E.O. or Bank R.E.O. which is short for Real Estate Owned. Banks typically price the home under current market value to induce a quick sale
giving an incentive to Jane Homebuyer to purchase the home, what Jane doesn't get is usually a history of the home or disclosure of known defects about the property because quite frankly most banks don't know any information about the property being sold.
Ok, so what about all these foreclosure homes everyone is talking about what are those? Homes known as foreclosed are homes foreclosed by, government agencies like H.U.D. (Department of Housing and Urban Development), and semi-government agencies like Fannie Mae and Freddie Mac who sell their homes in the same way as a bank REO it is just no bank is involved. You can search for foreclosed HUD homes on www.southwestalliance.com for the New Mexico & Texas HUD listings or through a HUD trained Realtor like myself. They work in exactly the same way a bank REO does, the government sells slightly below market value to procure a quick sale and move these homes off the market. The difference is the government offers incentives to police officers, nurses, EMT's, teachers, and firefighters at 50% of the home price in an effort to stabilize neighborhoods, the feeling is that these professions are people who get involved in their neighborhoods and communities. They also favor first time homebuyers that want to live in the property before an investor looking to "flip" or rent out the property. This incentive is why the myth that everyone can go out and bid on a foreclosed property at 50% of the price and actually get the property will go into my next example.
Recently I had a Bank REO property that was listed at $1.1 million dollars. The appraisal at the time for the property was $1.3m but the only offers we received were for $600K, $650K and $725K respectively. The bank refused all 3 offers why? The bank loan was probably around $1m so the bank would loose around $400k(ish) on a property worth $1.3m even though the market was slow the bank would be better of waiting 1 year until the market changed and sell it for the 1.3m and make a profit of $100-200K than a loss of $400k in that instance the $1m they are not making interest on in the mean time would not make the same amount of money for them as to just sit. Even though any Realtor will tell you letting a house just sit for 1 year or more causes problems to the actual property. The loss of the $400k won't get any bank employee a promotion any time soon.
So your mortgage payments are to much for you what do you do then? Contact your bank or another competitor to see if they will do a loan modification for you to reduce your monthly payments and you keep your home. Or you call me and place your home up for sale, regular or short sale BEFORE, did I say BEFORE you stop making the mortgage payments! Even if you are a few months behind and the lis pendens is filed it is not to late to try to sell your home; my recommendation is if you don't use me as your Realtor then use an experienced short sale agent who can actually get the property closed and knows how to work with the banks to do it in a short period of time. The main reason home buyers do not want to purchase short sales is because they can take anywhere from 60 days to 9 months to close.
Don't forget to visit http://www.BuyaHouseNewMexico.com to see our great new look!
We aslo want to thank you for visiting out affiliates, I am working on a few more deals with major companies to improve your home buying and selling experince:
Posts
