Friday, April 4, 2008

Foreclosures & Short Sales - Part 3

Okay - I was a little late getting part 3 finished! But the nice weather is definitely helping the market so things are getting busier! In the final installment of Foreclosures and Short Sales - lets look at what happens when the bank finally forecloses. When the bank takes your house - it's called foreclosure. In Illinois - it requires a "Judicial Foreclosure". That means the bank must take you to court and basically SUE to take the house back. They cannot just file paperwork and take your house because you didn't make your payment. Once the bank has filed all the necessary paperwork for the foreclosure, the bank goes to court and the judge awards a "foreclosure" which means the sale of your property is ordered in order to settle the debt with the lender/mortgagor. The judge in the case schedules a date for teh sale of your home at auction. In Illinois - the county sheriff's department actually handles the auction/sale. Sheriff's department auctions are typically handled on the same day every month, and often weekly. On the day of the auction anyone can bid on the property.
After the auction - sometimes you have what is called a "redemption period" where you can buy the property back by paying the bank what you owe. To see if you have a redemption period you must check your mortgage paperwork. If you are still living in the house after the auction sale - don't worry. They aren't going to knock on your door that day and tell you to get out. But your days are numbered. It's usually a good idea to be out by this time if you can. Within a day or two of the auction, someone will probably come by the house to verify if the property is occupied or vacant. If the property is occupied - they may ask you to leave or try to intimidate you. If that doesn't work - they will have to go back to court for an eviction. within 2 weeks to a month they will most likely get an order for possession. At that court date - the judge will set a date for possession and you will have to be out that day. If you aren't - the sheriff will forcibly remove you from the property. The party is over.
So...after all that back and forth in court - the house is gone. Now the bank owns the home. Because of the court costs involved in a foreclosure - it often makes financial sense for the bank to do a short sale before going through all this legal mess. Because the work has just begun. Now that they have the property back - they have to sell it. First they hire a property management company to check the property for repairs, make sure utilities are on, winterize the property if it is winter and perform any other necessary maintenance. Then the bank orders an appraisal to see what the property is worth. Then they put the utilities in their name- more monthly costs. Finally, they hire a realtor to list and sell the house. Now they have commissions, utilities, property management costs, closing costs, repair, maintenance and upkeep costs. You can see how all this quickly adds up for the bank. Very rarely is the bank actually going to make money off taking your home. Banks are in the lending business - not the property business. They dont' want your house.
Now that the bank has all these added expenses - they are also going to try and get as much as possible for the property. When a bank owns a home it is called "REO" or "Real Estate Owned". Banks will negotiate on the sale of a property just like any other homeowner. But they also want to get as much as possible. Typically they are looking for 75-85% of market value. What is market value? That's a pretty hot topic these days. If everyone could agree on what market value is - I think we would all be better off!
If you are someone interested in buying a foreclosure -you actually have a better chance of getting a good deal in a short sale situation. I hope this discussion has helped shed a little light on the foreclosure, pre-foreclosure and short sale process. I am by no means an expert - but I've been doing it long enough that I think I've learned a thing or two!

No comments: