Everyone is talking about foreclosures these days, even me. In March alone - I wrote about foreclosures 3 times. You've probably heard a lot of terms thrown around - foreclosure, pre-foreclosure, short sale, loss mitigation, REO. What do they all mean? In part 1 today, I am going to talk a little about pre-foreclosure and short-sales. In part 2 tomorrow - I will talk about Foreclosures.
A "Foreclosure" is when the bank takes your home back because you haven't been paying the mortgage. The "Foreclosure Process" is highly regulated by the state - and lenders must follow a certain process to foreclose on a home. "Pre-Foreclosure" is typically what you are going through before the bank actually takes the home. For the purposes of this blog, I will use the term "Pre-Foreclosure" to discuss what happens before the bank takes the home. In the "Foreclosure" section I will talk about how the property is auctioned off and what the bank does with a property once they have foreclosed - or taken the home back.
The foreclosure or Pre-foreclosure process takes about 6 to 8 months. This is from the time you miss your first payment. There are several different types of foreclsoure you may have heard of; Judicial Foreclosure - where the judge awards foreclosure to the bank, Deed in Lieu of Foreclosure - where you give the property back to the bank to avoid foreclosure, and Consent Foreclosure- where the court enters a judgment of foreclosure and gives the title to the lender. More details about these processes can be seen here.
During the pre-foreclosure process you can also sell your home. You can do this even if you sell your home for less than what you owe the bank. This is what we call a short-sale. In a short-sale, someone like myself works with you to put together a package of information the bank wants to see and then negotiates the sale with the bank. In order for a short-sale to work - the bank and anyone else with a lien on your property must approve the sale. This usually means they want to get paid! If you have a first and second loan - both lenders must agree to the terms of the sale. The second lien holder or mortgage holder usually gets very little - but if they don't take something and the bank forecloses - they get nothing.
If you are in pre-foreclosure it's important to start doing something very quickly. Too many times I see people ignore the problem or wait till the last minute to try and do something. The last month before the bank forecloses can be a very difficult time to get a deal done. Typically it will take 30-60 days just to negotiate with the bank and get a deal accepted. So if you are 30 days from foreclosure - it may be hard to get it done.
In part 2 of foreclosures tomorrow I will talk about why the bank would accept a short-sale and why buyers will be interested in purchasing your home.