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Foreclosures

BY KATHERINE FERNANDEZ

WHAT IS A FORECLOSURE

A foreclosed home is when a lender or lienholder seeks to take a property from a homeowner to satisfy a debt. The lender can either take ownership of the property or, most likely, sell the property to pay off the debt. The lender typically isn’t always looking for top dollar on this loan-gone-bad, just a fair price that will at least cover the unpaid mortgage. 

How to assist your buyers when looking at foreclosed properties

Many home buyers/investors believe looking for foreclosed homes will cut them a good deal. Truth is, it can be for the right buyer. This presentation will outline the process that goes into searching and purchasing foreclosed homes.

What is a Pre Foreclosure?

A pre-foreclosure property is not necessarily for sale. The pre-foreclosure stage is the period after a default notice has been sent to the homeowner and before the property is sold at a foreclosure auction. The owner may be working to fix the loan default or be hoping a cash buyer will purchase the property before foreclosure, which would damage his or her credit. Most experts consider this the most difficult stage during which to purchase a distressed home; you’ll be dealing directly with the owner, not a bank or mortgage company.

Common Sale Types Associated with Foreclosed and Pre Foreclosed homes

  • Auctions

  • REO Bank owned HUD-owned

  • In foreclosure Short-sale

Auctions and How They Work

A home auction is when the seller takes bids from potential buyers using a 3rd party company. When you’ve found a property you want to bid on, contact the auctioneer or trustee to determine how much money you need to bring to the auction; the MLS or auction webpage will typically specify. Many auctions in Maryland require bidders to bring a certified check made out to the auction company to show legitimate intent (EMD). In some cases, a percentage of the winning bid is required on the day of the sale. Make sure you research auction requirements in your state before bidding on a foreclosure. In Maryland, it is typically 10%. And remember that your auction bid is absolute.

What to Expect When Helping a Buyer with REO

Most offers are submitted online (must upload a contract of sale along with submission). Instructions on how to submit an offer are usually outlined on the listing, if not you can always reach out to the agent.

Not every buyer may be qualified for submitting an offer to an REO property.

What is a HUD-owned home?

HUD (Housing and Urban Development) homes are foreclosed properties that were originally purchased with FHA (Federal Housing Administration) loans. Residential properties become HUD homes when a homeowner is unable to keep up with their monthly mortgage payments and defaults on their loan. HUD becomes the property owner and offers it for sale to recover the loss on the foreclosure claim.

Any buyer who has the funds or can qualify for a loan is eligible to purchase a HUD home. In Order to assist a buyer in the purchase of a HUD home, you must be HUD certified.

Interested in becoming HUD certified?

You will need to take a class, and submit certain documentation to HUD. you can find more information following this link:

https://www.hud.gov/program_offices/housing/sfh/reo/hwtosell

What is a Short Sale?

A short sale in real estate is when a financially distressed homeowner sells their property for less than the amount due on the mortgage. The buyer of the property is a third party (not the bank), and all proceeds from the sale go to the lender. The lender either forgives the difference or gets a deficiency judgment against the borrower requiring them to pay the lender all or part of the difference between the sale price and the original value of the mortgage.

Short sales are a mixed bag for the buyer, the seller, and the lender. If

you're a seller, a short sale is likely to damage your credit — but not as badly as a foreclosure. You'll also walk away from your home without a penny from the deal, making it difficult for you to find another place to live.

A buyer should expect a short sale to take anywhere from 30 days to several months to close. The buyer always runs the possibility of the short sale being denied by the bank after waiting a long period.

In Maryland, short sales are handled by negotiators. A short sale negotiator works on behalf of a seller to reach a short sale approval with a bank or other lender. The individual's job is to persuade the lender to agree to accept less than the debt owed on the mortgage in order to allow the short sale to occur. Maryland brokers and salespersons cannot negotiate a short sale.

If you would like more information about the foreclosure process you can contact us by calling (240) 393-6756 or emailing pedro.meneses@compass.com.

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