Understanding Foreclosures
It is an unfortunate commentary, but when economic activity declines and housing activity
decreases more real property enter the foreclosure process. High interest rates and
creative financing arrangements also are contributing factors.
When prices are rapidly accelerating during a real estate "bonanza", many people go to
any lengths available to get into the market through investments in vacation homes, rental
housing and "trading up" to more expensive properties. In some cases, this results in the
taking on of high interest rate payments and second, third and even fourth deeds of trust.
Many buyers anticipate that interest rates will drop and home prices will continue to
escalate. Neither may occur, and borrowers may be faced with large "balloon" payments
becoming due. When payments cannot be met, the foreclosure process looms on the
horizon.
In the foreclosure process, one thing should be kept in mind: as a general rule, a lender
would rather receive payments than receive a home due to a foreclosure. Lenders are not
in the business of selling real estate and will often try to accommodate property owners
who are having payment problems. The best plan is to contact the lender before payment
problems arise. If monthly payments are too hefty, it may be that a lender will be able to
make some alternative payment arrangements until the owner's financial situation
improves.
Let's say, however, that a property owner has missed payments and has not made any
alternate arrangements with the lender. In this case, the lender may decide to begin the
foreclosure process. Under such circumstances, the lender, whether a bank, savings and
loan or private party, will request that the trustee, often a title company, file a notice of
default with the county recorder's office. A copy of the notice is mailed to the property
owner.
If the default is due to a balloon payment not being made when due, the lender can
require full payment on the entire outstanding loan as the only way to cure the default. If
the default is not cured, the lender may direct the trustee to sell the property at a public
sale.
In cases of a public sale, a notice of sale must be published in a local newspaper and
posted in a public place, usually the courthouse, for three consecutive weeks. Once the
notice of sale has been recorded, the property owner has until 5 days prior to the
published sale date to bring the loan current. If the owner cures the default by making up
the payments, the deed of trust will be reinstated and regular monthly payments will
continue as before.
After this time, it may still be possible for the property owner to work out a postponement
on the sale with the lender. However, if no postponement is reached, the property goes
"on the block". At the sale, buyers must pay the amount of their bid in cash, cashier's
check or other instrument acceptable to the trustee. A lender may "credit bid" up to the
amount of the obligation being foreclosed upon.
With the recent attention given to foreclosure, there also has been corresponding interest
in buying foreclosed properties. However, caveat emptor: buyer beware. Foreclosed
properties are very likely to be burdened with overdue taxes, liens and clouded titles. A
buyer should do his homework and ask a local title company for information concerning
these outstanding liens and encumbrances. Title insurance may or may not be available
following a foreclosure sale and various exceptions may be included in any title insurance
policy issued to a buyer of a foreclosed property.
Your local title company will be happy to provide additional information.
decreases more real property enter the foreclosure process. High interest rates and
creative financing arrangements also are contributing factors.
When prices are rapidly accelerating during a real estate "bonanza", many people go to
any lengths available to get into the market through investments in vacation homes, rental
housing and "trading up" to more expensive properties. In some cases, this results in the
taking on of high interest rate payments and second, third and even fourth deeds of trust.
Many buyers anticipate that interest rates will drop and home prices will continue to
escalate. Neither may occur, and borrowers may be faced with large "balloon" payments
becoming due. When payments cannot be met, the foreclosure process looms on the
horizon.
In the foreclosure process, one thing should be kept in mind: as a general rule, a lender
would rather receive payments than receive a home due to a foreclosure. Lenders are not
in the business of selling real estate and will often try to accommodate property owners
who are having payment problems. The best plan is to contact the lender before payment
problems arise. If monthly payments are too hefty, it may be that a lender will be able to
make some alternative payment arrangements until the owner's financial situation
improves.
Let's say, however, that a property owner has missed payments and has not made any
alternate arrangements with the lender. In this case, the lender may decide to begin the
foreclosure process. Under such circumstances, the lender, whether a bank, savings and
loan or private party, will request that the trustee, often a title company, file a notice of
default with the county recorder's office. A copy of the notice is mailed to the property
owner.
If the default is due to a balloon payment not being made when due, the lender can
require full payment on the entire outstanding loan as the only way to cure the default. If
the default is not cured, the lender may direct the trustee to sell the property at a public
sale.
In cases of a public sale, a notice of sale must be published in a local newspaper and
posted in a public place, usually the courthouse, for three consecutive weeks. Once the
notice of sale has been recorded, the property owner has until 5 days prior to the
published sale date to bring the loan current. If the owner cures the default by making up
the payments, the deed of trust will be reinstated and regular monthly payments will
continue as before.
After this time, it may still be possible for the property owner to work out a postponement
on the sale with the lender. However, if no postponement is reached, the property goes
"on the block". At the sale, buyers must pay the amount of their bid in cash, cashier's
check or other instrument acceptable to the trustee. A lender may "credit bid" up to the
amount of the obligation being foreclosed upon.
With the recent attention given to foreclosure, there also has been corresponding interest
in buying foreclosed properties. However, caveat emptor: buyer beware. Foreclosed
properties are very likely to be burdened with overdue taxes, liens and clouded titles. A
buyer should do his homework and ask a local title company for information concerning
these outstanding liens and encumbrances. Title insurance may or may not be available
following a foreclosure sale and various exceptions may be included in any title insurance
policy issued to a buyer of a foreclosed property.
Your local title company will be happy to provide additional information.
Still have questions? Contact me today for a
free consultation!
free consultation!
Colin O’Neal
Buyer’s Agent
200 Rufe Snow North, Suite 202
Keller, TX 76248
(817) 898-0145 Office
(817) 898-1771 Fax
colin@househuntersdfw.com
Buyer’s Agent
200 Rufe Snow North, Suite 202
Keller, TX 76248
(817) 898-0145 Office
(817) 898-1771 Fax
colin@househuntersdfw.com
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