Posted: 5/14/2007 7:34:01 AM EDT
| So much news about foreclosures these days. But how does it work. Do they take your house and sell it and pocket everything? what happens to the down payment or any equity in the home? |
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Once you default on the load the bank starts the foreclosure process. 1st the deed goes to sheriffs sale. Then the person has XXX amount of days to redeem the mortgage. The days very state to state. If the home is vacant, or being used for illegal reasons, the redemption time can and usually shortend. If the occupant of the home doesn't want to leave before the redemption time expires, they are free to do so. If they want to leave, most banks offer something called "cash for keys" to get them out of there early. Once the redemption time expires, if the home is still occupied, the eviction process starts. Once the home is vacant, it usually gets trashed out, sometimes rehab'd, or put up for sale "as-is". Banks go off of math formula based on time on market and carrying costs (mostly). If a home is brand new to the market, they usually wont let them go for rock bottom prices. In some states it is illegal for banks to profit off of the sale of a foreclosed home. The entire time ALL of this is going on, the banks are paying people like me to do Broker Price Opinions of the home and apprasiers are being paid to do appraisals, usually without the occupant knowing. Kiss the equity goodbye. Kiss the downpayment goodbye. |
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Its a "fire sale" or a sale under distress, there are no warranties, and there's a risk to the purchaser that the original owner will simply redeem if its a state with a redemption period. For these reasons, sale price is always lower than what the house is worth. At the auction, the lender is there. It gets to bid on the house using the debt owed by the current homeowner as cash. In order words, if Joe Blow still owes Countrywide $100K for the house and they're the ones foreclosing, they can "bid" up to $100K without actually writing a check. Assuming the house sells to another bidder who is not a lender, the funds get paid to the lender who applies them to the receivable, including (now) costs of the foreclosure and attorneys fees. What is usually left of the original debt is called a "deficiency." They can still chase the original borrower for the deficiency in most states. On the rare occasion (and I've never seen it) where there is so much equity in the house that the bids at foreclosure generate proceeds higher than the amount owed to the foreclosing lender, then the surplus goes back to the original borrower, unless there's a junior lender unpaid whose security would be foreclosed off the property by the foreclosure. The reason you generally don't see "high equity" properties go into foreclosure is that it is almost always easier for the borrower to put the house on the market and sell it at a loss, but a smaller one than would be faced in foreclosure. That only works, on the other hand, in high equity situations. All these situations where people did 100% financing are train wrecks, because the lender will refuse to allow a short sale. |
And being that it is the banks property, they dont have to let the occupant know it. I know of a case where this couple bought a home when the prices were low... then the boom came and they didnt pay the mortgage for one reason or another. After the forclosure they were given a very nice lump sum of money after all the fees and whatnot. They lost that too after a short while.... knuckleheads! When there were foreclosures back in the early 90's I remember talking to some of my customers that worked for banks that were saying to people "DONT give us the keys... we will work with you to keep the house" because they had so many they didnt want the houses. Believe it or not, MOST banks dont want foreclosures... they have programs to help you keep it. |
Yup, it is VERY expensive for banks to sell Real Estate. VERY. Attorny fee's, Real Estate Commissions, holding costs, insurances, trash outs, evictions, utilities, lawn care, snow removal, resecure, etc.... Most people ignore the calls from the banks becuase of pride, ignorance or stupidity. I usually find it to be the stupidity reason. |
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I'm an AZ Broker. I hope you’re not going thru one yourself. It depends what kind of financing you have. Mortgage, Deed of Trust or Agreement for Sale. Every state has different rights and time periods. Mortgage is a judicial Foreclosure. Long process, Sheriff Sale, Redemption rights. Deed of Trust is non Judicial and can be done quickly with no redemption rights. Same with Agreement for sale. Most loans are Deed of trusts even though everyone calls them Mortgages. If you’re in trouble now look into a short sale. Most Banks or holders of the 1st Deed of Trust let the property go thru Foreclosure to wipe out the 2nd and make the property profitable and marketable. |
Hnot going thru it personally. So do lenders try to unload as quickly as they can as long as they get back the balance of the money owe to them? |
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There's good info in this thread. As already said, the specific process and rules depend on your state. There might even be some variations by county. Generally, the bank doesn't just reposess your house like it's a TV or a car. They've got to go through the foreclosure process. This is a kind of lawsuit. A key part of the process is the auction. The idea of the auction is that the bank can't just take the house you owe $100K on and claim it's run down and only worth 80K even when you think it's worth $150K. Probably the fairest and most effecient way to figure out how much the house is really worth is to auction it off and let anyone and everyone bid on it. If it sells for more than you owe, you get the difference. If it sells for less, you still owe that. If the bank forgives that amount and you walk away, you may owe taxes on that amount. As another poster said, you're much better selling it at a loss if you have equity. You can even hire your own auctioneer. Unfortunately, so many people who have any equity and are facing foreclosure get screwed. They get second mortgages that let them get "caught up" and give them a little money in the pocket. A couple of months later, that cash is gone, they have no equity, and have no chance of avoiding foreclosure. |
Mortgage procedures vary greatly from state to state. Basically, if you miss a certain number of loan payments the lender takes custody of the property and sells it for whatever they can get. You have to move somewhere else. Your down payment and any equity you may have had are gone. You get nothing. |
They auction the house, for whatever is owed on it. In a forecolsure, if they get more than that, then they keep the rest. In a short sale, you would get to keep any extra (after paying taxes and so on).... ...but if housing prices are appreciating, then you can usually get refinancing based on an increasing home value compared to a set amount of loan principal..... It is only when housing prices are deflating that you can't get refinancing. Just like now. ------- Supposedly there's a lot of people in the west coast who are planning on defaulting/foreclosing as cheaply as they can; some are even planning bankruptcies. Houses in some soCal areas are already selling at 1/3 off peak prices. A lot of people who bought at peak prices and are still making house payments are wondering if they should even bother; a few people have already decided. ~ |
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I wonder if there are any businesses who buy these houses from mortgage companies. My FIL was a third party who bought totaled cars from insurance companies and then resold them to whoever as whole cars. He made an amazing amount of money because insurance companies wanted to rid themsevles of those cars and some one always wanted to buy them. |
There are investment and real etate holding companies that buy foreclosed homes in bulk, sometimes 2-3 sometimes 10's-50's etc....Then they hand that portfolio over to an asset management company. These investment/ holding co.'s buy the distressed 'paper' at huge discounts and either sell the paper or sell the homes on the regular RE market locally. |