Foreclosures and How to Work with Home Owners

Foreclosures are at an ALL TIME High throughout the United States.

I don't know about the rest of the world, but there have been times in my life when I have felt as though I was one paycheck away from serious financial peril.

Too bad Superman doesn't come to the rescue for matters such as this. One of my greatest fears has been losing a home because lost of job, or injured myself that required me not to work for an extended period of time that exceeded my savings, or any of nearly a thousand reasons.

The recent movie Fun With Dick and Jane struck a chord of sheer terror in my heart because bad things sometimes happen to good people.

Good people have their lives ruined through circumstances that are completely and totally beyond their control.

With a foreclosure, there really isn't a bad guy. There is no mad banker waiting greedily in the wings to throw your family out on the street.

The truth is most of these people have a great amount of compassion and come across as harsh because the decision to foreclose generally isn't up to them.

Besides we signed on the dotted line when we decided to purchase a home. A home is, for most people, the single largest investment we make in our lives.

The process of foreclosure can be frightening if you are armed with knowledge; it is absolutely terrifying if you are uninformed throughout the process.

Here are some things you should know about the process and how to avoid it.

1) First of all, a home does not go into foreclosure until you have become 3 months behind on your payments. Of course the goal is to never get behind at all, but we all know that stuff sometimes happens and some things are beyond our control.

This means you do not have to exist in constant worry that if you are a few days late on your mortgage payment for a couple of months that the sky will fall.

This is unlikely to be the case unless you are seriously behind. Be proactive and don't let yourself get that far behind, or start working with the bank beforehand if you know it's inevitable.

2) Once you are three months behind you will either go into what is called judicial or non-judicial foreclosure, depending on the state.

In a judicial foreclosure, a lawsuit is issued to the homeowner who can elect whether or not to respond.

If the owner doesn't respond the home is auctioned off to the highest bidder unless the bid doesn't exceed the total amount owed on the home.

In a non-judicial foreclosure the lending institution would issue a statement of default and notify the owner of its intent to sell the home.

The owner at this time can possibly work to arrange an agreement and payment plan that is acceptable to the financial institution, or file a chapter 13 bankruptcy in order to stop the foreclosure. If this does not happen then the property will be sold.

3) Here is where it gets tricky. If the sale of the home doesn’t result in a sum of money that is at least equal to the amount owed on the home, the original homeowner is responsible for the difference.

Failure to pay the difference can be just as detrimental to your credit as the foreclosure itself.

The process is not fun; it is not meant to be. Don’t overextend yourself credit wise. Buy a house you know you can afford and live below your means.

Buying Foreclosed Homes

You’ll find there are some people who tout the benefits and advantages of buying homes that have gone through foreclosure.

Often, those homes are offered up for auction to the highest bidder and there are some really good deals to be had at that point.

There are some very important pieces of information you should have before you start planning to buy homes that have been foreclosed upon.

First, understand that a lender gave money to the person who wanted to buy that house in order for that borrower to make the transaction.

The lender had some expectation that he’d recover all that money plus some interest, but most lenders simply aren’t in a position to handle property.

They don’t want to foreclose on the house because then they’re going to have to do something with it.

That means that the process could take a long time while they look for some way to recover the loan from the original borrower, but it also means that most lenders are going to foreclose and then quickly offer the property at auction.

You’ve probably heard about auctions that ended with buyers getting really good deals. That happens, but it’s not always the case.

Why would a lender agree to let a particular piece of property go for less than it’s worth?

Remember that the lender isn’t in the real estate business and their primary objective will usually be to recover the amount of the original loan plus interest, if possible.

If the original loan had been paid down significantly, the lender could agree to sell the property for a fraction of its value.

Another important point is that these auctions will typically be made public.

For the person hoping to bid on the property after the foreclosure is complete, this probably means you’re going to have some competition.

This is the main reason it’s not a good idea to allow the process to run its course before you try to buy a particular piece of property or to buy it back if you were the owner before the foreclosure.

Most lenders aren’t anxious to foreclose on the property. They’ll often work with the owner for a long time, hoping that the loan will eventually be repaid.

But when they have to foreclose, they usually don’t want to hold the property long while looking for a buyer who will offer up a good deal. If you’re planning to visit some auctions, you may very well find an incredible deal.


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