Where in the Foreclosure Process Can I Purchase the Property
You hear that your neighbor has fallen on hard times. He says that he can no longer pay the mortgage. You have always liked his house and would like to buy it from him. But you wonder where in the foreclosure process is the best time to buy the property.
This is a situation that occurs quite often. Check now the five levels of foreclosure and what is involved in buying a house in each level.
Owner receives Notice of Default after missing payments for 3 to 6 months. This notice is also recorded at the County Recorder’s Office. Buyer will negotiate with owner but must be able to pay off at least the amount owed on the mortgage plus added late charges, fees and back interest. A traditional sale happens here. You can go through a realtor or you can use a title company to oversee the transaction.
Intent to Foreclose
The owner receives a recorded Notice of Sale. The time between the notice and the sale allows the owner to complete a Short Sale. Usually the homeowner will list the property with a real estate agent. Any offers will need to go through the realtor but they must have bank approval. This is long, drawn out process which can take months. There is a high degree of rejection in this process.
If the owner is unable to sell the property before the date on the Notice of Sale, the property will be auctioned in a Trustee Sale, which typically occurs on the steps of the county building. The property will be publically auctioned to the highest bidder - which is usually the lender.
The highest bidder must pay must have all funds to pay for the purchase immediately (usually a 10% deposit and the remainder within 24 hours). Generally there are no property inspections and the property is sold "As Is" with no warranty as to condition. Any liens written before the one under foreclosure are still active on the property. The winner of the auction receives a trustee’s deed to the property.
Right of Redemption
The redemption period is the period of time whereby the previous owner can return and regain ownership of the property. The original owner can buy back the home from whoever paid for it at the auction. A buyer can purchase the property from the original owner but they must pay at least the auction price plus any county fees, auction costs and interest which can be at an annual rate of up to 24%. This time period starts from the sale date and can extend anywhere from 10 days (New Jersey) to almost two years (Tennessee). Only about half the States offer a redemption period. The purchase can go through a realtor or be a private sale. Documents must be filed with the county and the payment is made there also.
Bank Owned Property (REO)
After the redemption period has expired, the highest bidder (usually the lender) now owns the property. Properties are usually listed with real estate agents. Inspections are allowed. All liens have been removed and the property can be purchased with a clean title. A traditional sale happens here.
Many of the levels of the foreclosure process will involve a real estate agent to oversee the transaction. Purchasing the property within the short sale period is the most time consuming. The auction process carries the highest degree of risk. If a buyer is prepared, however, to meet the financial obligations placed on the property by the lender, he or she stands the greatest chance of being able to obtain the property.