Better brush up:
Foreclosure has many stages and all of them are very litigious. When listing a property in danger of foreclosure or selling one to a buyer that already has foreclosed, it pays to have your vocabulary expanded.
Before foreclosure:The forced sale of property pledged as security for a debt that is in default. or even PRE-foreclosure:the homeowner is in default and has been warned, but can still rectify the situation the homeowner must fall into the state of: Default, a mortgage or deed of trust is said to be in default when the borrower fails to make the payments as agreed to in the original promissory note.
Once a homeowner is in default there are processes and actions the homeowner can take to avoid losing their home.
They can:
Pay off the default. This can be done in a lump sum and if the lapse was due to a temporary concern then they may want to explore a loan to accomplish this. It can also be done through a work out with the lender, which is usually a payment plan over the course of a few months.
Sell their home. This is where the short sale:(a sale of real estate in which the proceeds from the sale fall short of the balance owed on a loan secured by the property sold) issues may crop up, especially if they purchased the property during the peak of market values. This is extreme, but will help them to save their credit. I encourage people in distress to try to let go of the emotions attached and instead of looking at selling the home to avoid foreclosure they should think of it as a “do over” or a fresh start.
The final choice, and one that is only used at the very tail end of the foreclosure process is the Deed In Lieu of Foreclosure. This is when borrowers voluntarily convey their rights in a property to the lender. There is a small benefit to the homeowners credit if they do this instead of allowing the complete foreclosure process to occur.
No one wants to lose their home to foreclosure, but if the homeowner takes advantage of the pre-foreclosure time they can try to work out a more favorable solution. Allowing the home to fall into foreclosure is never the best solution.
For a complete glossary of foreclosure terms visit: United States Foreclosure Law
If you would like to read of my personal travails in the world of foreclosures visit my distressed home sales blog.
How do you reestablish a promissory note if the original is lost? Does the homeowner have to participate, sign the new note?
Lesley,
Good post. Never a bad idea to refresh on all the Greek language in use in law.
RM
Foreclosures and short sales may look like two tons of work, but I am doing great here in Naples Florida selling REOs.
We’ve had some legal cases here where investors where giving owners a Deed In Lieu of Foreclosure, then defaulting themselves. Lender came back to the original homeowners because they never approved the original deed. Watch out for the shady bottom-feeders in this market. If it sounds too good to be true, well, you know the rest.
Navy Chief, Navy Pride
Joe, that’s nasty. It’s amazing how many schemes can be dreamed up by the dark side. Where is this going on?
RM
And each state is different, what is law in one state in not in another one. In Michigan we have a 6 month statute of redemption. So even if it goes to Sheriffs sale it can still be sold “short” as the owner still has the right to try to redeem the home.
Great info …but if a realtor doesn’t know this info at this point in the game, …welll it’s game over for them. This wa sinfo they needed to know (and info we taught) two years ago. Realtors just learning this are basically toast.
Thankfully you broke it down to the 101 of the process for the newer agents, but I must say if any agent thinks they are too big for their britches (and believe me there are a lot in the Hollywood area) to service the “low end” such as REOs/Short sales, they are missing a lot of opportunity. Why does real estate tend to attract agents who only work the luxury market or the fixer market? You can have your cake and eat it too!
I don’t specialize or even focus on distressed, but my last three sales ended up being short sales.
Didn’t affect what was going on on my side (buy side) much, other than the initial very low offer we made.
RM
I think it is important for us to be well versed on all aspects of real estate transactions. Whether you participate in a foreclosure ever in your career or not is your choice, but you should be educated.