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September 14, 2013

Essay on Foreclosures

Pros and Cons of Foreclosures

Foreclosure refers to the legal process through which a mortgagee or other lien holder, commonly a lender, gets the termination of a mortgagor’s equitable right of redemption. It is done through court order or by operation of law.(Ralph, 64) The process of foreclosure has its advantages and pitfalls. Many buyers believe that buying a foreclosure is all good. This may be true to some extent but there are some serious pitfalls as well. However, it should be kept in mind that the pros and cons of buying a home inherent in the process of foreclosure vary from the phase of foreclosure the property is in when purchased.  
Investing in foreclosures is undoubtedly one of the best ways to make money in the economy. As with any type of business, risks are involved. Investing in foreclosed properties offers great opportunity to buy homes significantly under market, but there are some risks, like a lot of research, under lying issues of privilege, in the long term carrying costs and more. But if one is ready to take the chance on a property or two he or she can prosper in the end.
Seized homes can be purchased at several stages. First is the pre-foreclosure phase, then the phase of the auction and, finally, the phase of each REO presents its own set of pros. The general advice usually is that one should familiarize oneself with each of different types of seizures and weigh the advantages and disadvantages of each in order to be able to avoid costly mistakes and problems arising out of investments in home foreclosures.
Purchase of seizures is a potentially profitable investment in Real Estate. The advantages of buying seizures in many cases outweigh the disadvantages. A foreclosure is the term used when a home owner falls behind in mortgage payments and the lender who holds the mortgage takes legal action to recover the property. Although there are other circumstances that could lead to foreclosure, behind at least two full monthly payments is the most common reason. There are several laws that were adopted in various states that protect the rights of the owner in the case of foreclosures.
However, if the owner is unable to offset the amount due and lock is engaged, it will lose any equity he might have in the house. The lender will ultimately sell the property to another buyer in a sale by public auction and the owner will be deported. This is perhaps the biggest advantage of buying a foreclosure property. The home owner is facing a serious loss if it has equity in the house at all. It will be very open to any type of transaction that reduces its losses as much as possible.

It goes without saying that the homeowner will not be in a very healthy financial situation. If he were, he would not have fallen behind in his payments in the first place. This means he is quite willing to negotiate some kind of understanding that allows him to leave the situation without losing everything. The potential buyer will probably get the property at substantially below market value. This creates an ideal situation for flipping the property.
It is generally preferable to deal directly with the owner whenever possible, but seizures can almost be bid at the sale by public auction. The offers are usually sealed bids and the successful bidder will provide the bid price promptly. The owner might have to actually be expelled, but despite this, it is often useful to make offers the possibility to obtain the property at a price well below market value is good. Another method of buying foreclosures is called REO. This means real property owned Estate. These are properties that have not been sold at auctions and are now owned by the lender.
Lenders will be ready to unload the goods at a very reasonable price. They are primarily interested in recovering the loan balance or as much of it as possible. They are in business of lending money, not managing Real Estate and want to unload the property as quickly as possible. The benefits of buying seizures can be summarized by the fact that the properties can be purchased by an investor at a price below their market value. This is the ideal situation for buying low cost homes amid high transaction costs.

                                                       Pre-Foreclosure Stage

This is the stage when the owner is always in control of the property. Although the loan is in default and the pressure from lenders is just beginning. The owner is able to sell the property quickly and avoiding the foreclosure process all together. This means savings of shade and large potential profits for you. The cons side is that owner may not be accessible usually due to the fact that many investors are looking to buy these types of seizures. In this stage, the competition is usually fierce. A lot of time on researching documents and court filings is spent. There are also undisclosed liens or underlying property cons as well.  

                                                              Auction Phase

Auction phase is perhaps the most profitable stage of a foreclosure. Auction properties usually offer the best profit potential when buying foreclosures. A property auction is sold at a public auction to the highest bidder. If you have you done research that these types of properties are sometimes sold under market value.

                                                                  Phase REO

An REO occurs when the lender retains the property after the auction phase. If the tender is not high enough in the car, the lender will bid on the property to take control and sell themselves. In most cases, the property has no value to the lender until the house sells. In this case, the lender is usually motivated to sell property fast.
When investing in real estate, including foreclosures there risk involved. While the potential to make substantial profits in foreclosures, you must make sure that you do your research well and understand what your risks. The properties that offer the greatest profit potential are often increased investment risk.

Military Foreclosures
The irony of the matter is that military families in America also facing foreclosures in the home front much like Afghanistan and Iraq. There are many individuals from the military group who are battling with the consistent fallout from the housing crisis. As a result, military families plunge into the vortex. Over 20,000 veterans on active duty together with reservists who had availed of special mortgages backed by the government have surrendered their properties to foreclosure in 2010 – it being the highest figures since 2003.(Rhodes, 24)
The military families have been specifically battered by the housing crisis due to their frequent transfers and the loss of jobs in the civilian sector that the reservists have left behind. Home owners facing foreclosure in California have approximately 120 days after the notice of default (approximately 4 months) to settle their mortgage debt. When an owner is in this situation, the most proactive step an owner can do is to take timely action to obtain a realistic look at what their options may be. There are many choices that the owner can choose how to best reduce the overall loss during the stressful financial situation they are in May, however, the refusal must not be one of them.
In fact the range of options that are available, it is a little known process called "short sale", which for some homeowners in foreclosure may seem like a dream come true. Short sales occur if a lender allows a homeowner in default to sell a house for less than the total value of the loan. In many cases, the lender then forgives the remaining debt.
Lenders may claim whatever debt they've forgiven as a loss on their taxes and issue a Form 1099 to the owner, in this case the seller, for the full amount. In other words, debt forgiveness is taxable as earned income and loss of function and the owner (the seller and potential) tax bracket that could mean a significant increase in their taxes. An owner should definitely check with his accountant for the information.
On the other hand, if a property is sold under a short sale, the lender may require the buyer to make a difference, either through a personal obligation or a collection for the balance often referred to as deficiency judgments. 
While lenders will traditionally pursue other loss mitigation methods to work with the owner, when it seems very unlikely that the owner will be able to pay the debt Pack - the lender may choose to make a sale in order to avoid further financial losses. Admittedly, this "win-win situation involves parties who have already resigned to losing their homes and away from their obligations to less damage to their credit. And as for lenders, they know that repossessing the home (probably with a declining value) will cost them thousands of dollars to maintain, renovate, market and sell, without any guarantee that it will recover the same amount he would have won a short sale.
Similarly, homeowners understand that foreclosure will take only a few steps from their house, but also provide a "black eye" on their credit that will remain for at least seven years. With this in mind the two sides may be willing to negotiate a short sale but the lender finally the last word on whether this is an option they can.(Elias, 223)
Another good reason why a short sale may be desirable is that the surrounding neighborhood and the wider community benefit in May of homeowners opting for short sales, instead of being seized, as these types of sales are not as strong as the discounted foreclosure auction. These sales may help "mitigate drastic decreases in the values ​​of surrounding properties.
For an owner to consider this option there will be many details that must be addressed and negotiated with the lender. If your bank accepts a short sale, the owner decides to hire an agent to find a buyer for the home, sells the house at a loss, and with the approval of the bank, they agree to take the loss. To be sure, as trying as it may be in the circumstances, a homeowner should try to keep communications professional and courteous with their lender at any time.
This open communication can significantly improve the possibility of a faster, smoother transaction and the appropriate solution for all parties concerned. An owner can literally be a race against the clock and everything he or she can do to facilitate the process, resulting in a much more positive than it might otherwise be.(Douglin, 432)

In addition, the owner must be diligent to find a professional agent who understands short selling well and has experience working with lenders and banks before giving the agent's potential listing and recruiting him to sell his house. As the paperwork intensive as a regular real estate transaction can be, the paperwork and negotiation process will intensify in a short sale and lenders will be scrutinizing any irregularity in the transaction.
Not surprisingly, too many distressed homeowners often seek to sell their assets to family members or other relatives. A lender may be wary of potential buyers with an interest. Accordingly, the owner will need a professional who understands the procedures for loss mitigation and the pros and cons of short sales and is able to successfully negotiate with the lender.

Works Cited
Elias, Stephen “The Foreclosure Survival Guide: Keep Your House Or Walk Away with Money in Your Pocket” Nolo 2009
Rhodes, Trevor. “American Foreclosure: Everything U Need to Know... about Preventing & Buying. 348 pages. McGraw-Hill, 2008
Ralph, Roberts “Foreclosure Investing for Dummies” For Dummies 2007
Douglin Carla “The Foreclosure Workbook”  Xulon Press 2007


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