Click for the California foreclosure process timeline.
A Pre-Foreclosure happens when a homeowner is defaulting on their mortgage. Often times the homeowner will catch up on the payments and become “current” and other times they are spiraling out of control with debt balances rising rapidly.
In these cases, a homeowner may try and sell their home on the open market before the foreclosure process starts. They may even talk with their lender about approving a short sale for them? Getting behind on mortgage payments is the first step toward a foreclosure. Usually, it takes 2-4 months of delinquency (seller getting behind on their payments) before the lender will wake up and take notice. Remember, once you are 30 days late, it is on your credit. It only gets worse from there.
What does this mean for you? Usually nothing. If the homeowner cannot become current with their payments, than likely they will put the home on the market for sale at some point in time. It’s typically too early for a deal here because the home owner is in denial and thinks they can become current on the mortgage or that they can sell their home for the same or higher price than the last sale in their tract. Usually, this means the initial asking price will be too high (if they decide to come on the market), at least for now. I like to call this type of seller one that is “not ripe enough” yet.
Tips: If a seller is spiraling out of control with debt and has other assets to safe guard, they might put their home on the market with a super hot buy price to make a quick sale. Hopefully you are working with an agent like me who can tell you if that price is truly a super hot buy and can submit an offer quickly!
REO is bank language for real estate owned, meaning property owned by a bank or financial group. Typically called a “Bank Owned Home”. Usually a result of their borrowers defaulting on the loan and the subsequent foreclosure of the property from that buyer by the bank.
What does this mean for you? These are your best bet in getting a distressed property. Most of these in today’s market are receiving multiple offers and moving quickly. They depend on how many days or months the bank has owned the property and how soon they want to stop the bleeding and unload the property.
Tips: You better have at least 10% of your own money going toward a down payment as all lenders owning property want to see that you have “skin” in the game. (I did however get an offer accepted with only a 6.5% down payment but it took 4 different offers on 4 different homes to finally get it done). Don’t offer on one of these with 3% financing or you can be sure your offer will stay at the bottom of the pile or you will be beaten out. If you are planning to go after these, your best bet is to have 10-20% or more as a down payment, lower your 17 days of allowed due diligence (contingency period) down to 10 days or so, provided your lender can perform their appraisal and underwriting within that time frame. Also, try and close escrow in less than 30 days. This always looks good to a bank. Better yet, you can easily have your independent physical home inspection and termite inspection (if applicable) completed within the first 3 days after an offer has been accepted, so write your offer that you will release your good faith deposit as non refundable to the bank after the first 5-8 days of escrow. I can explain this in detail if you wish.
All these tips will usually open the eyes of the bank and make them want to do business with you. I think the REO property is the best one to go after but I have seen deals in all categories. Good luck!
A Short Sale is when the homeowner owes more on their mortgage than what the property could currently sell for in today’s real estate market. This can occur for many different reasons. Short sales are a better choice for the home owner than a foreclosure. The Short Sale process must be agreed to by the lender. There is quite a bit of paperwork involved in this process which the lender will ask for. This will include a “Hardship Letter” proving the inability to keep up with the mortgage payments, W-2’s, pay stubs, tax returns, bank statements and more… Most lenders would prefer a short sale rather than a foreclosure.
One very important item that all homeowners contemplating a short sale need to be aware of is the difference in the amount that the lender forgives (and some Lender’s don’t forgive), the IRS does not. The “difference” is what the home sold for and what your actual payoff was. There will be a difference and the IRS considers this as debt relief or income and may issue you the “1099”. Click here for some questions and answers on debt relief.
What does this mean for you? It depends on whether the short sale has been approved by the lender or not. Usually, a homeowner, with the assistance of their real estate agent, has filed all the necessary short sale paperwork and are just waiting for an approval on the short sale subject to price, terms and conditions. Just because it is a short sale does NOT mean it is a deal. Not yet. Getting approval from the lender is the key. Making an offer on one of these that isn’t approved yet by the lender could take many weeks if not months for approval. Your offer might be stuck in a stack of other offers just waiting for the lenders answer on whether they are willing to take a loss and do a short sale.
However, an approved short sale subject to the lenders price, terms and conditions is one to take notice. This means the lender has approved the sellers for a short sale. Understand that if your offer is lower than the lenders approval price, the time frame to get an answer on your offer could take a lot more time. You have a better chance (in my mind) going after an approved short sale than one that has not been approved. These many times have the same problem as a pre-foreclosure in that the sellers usually start out with an asking price too high and cannot get a bonafide offer to submit to their lender for approval.
Tips: If it is an approved short sale, then go for it. Otherwise, look for one of these with a high amount of days on market coupled with a few price reductions.
A Foreclosure is the legal proceeding in which a bank or other secured creditor sells or repossesses a parcel of real property due to the owner’s failure to comply with the “mortgage”. Commonly, the violation is a default in payment of the note, secured by a lien on the property. When the process is complete, it is typically said that “the lender has foreclosed its mortgage or lien”. If you have made it this far as a homeowner, know that your credit has been affected in a very negative way.
What does this mean for you? Nothing until it goes to auction or back to the bank as a REO (Bank Owned Home).
Trustee Sale or Public Auction is just that, a public auction of the home that is foreclosed on by the bank (lender), sometimes referred to as a “Foreclosure Sale”. It is sold to satisfy unpaid mortgages and liens against the property. A Trustee is an individual or company chosen to administer the assets of the beneficiary and facilitate the foreclosure process.
What does this mean for you? These are very risky and hard to keep up with as the sale dates and locations change. You will have to go to the courthouse steps and bid on this property. In most cases, you won’t be able to get into the home initially to perform a visual inspection or “look see” before the sale. There could also be other costs associated in buying a home at a foreclosure sale (Auction) such as back taxes or other liens. You will acquire and be responsible for those (if any) as part of your purchase. Be prepared to pay for the home with certified funds once the sale is over. I don’t recommend trying to buy one of these unless you are experienced in foreclosures or willing to take a gamble.
Tips: Try and find someone who has been to a few auctions before as they may be able to share their experiences with you. Go to a few yourself first to see how they are run before actually bidding on one. Be sure you have the funds to gamble with:)
This page contains specific information regarding the Foreclosure Process and how it relates to Ladera Ranch homes and real estate in Ladera Ranch California. I can easily assist you in your search for Ladera Ranch homes as not only do I work in Ladera Ranch but I live in Ladera Ranch as well.