|
Last Updated: May 14th, 2012 - 22:24:01 |
THE MARKET
The foreclosure market in California may be divided into three separate steps, depending on time when the distressed property is for sale. Each step has its advantages and disadvantages. Some buyers specialize in one step; others will consider purchases at any of the stages, depending on the conditions applicable to the particular property. The first stage, called pre-foreclosure, lasts from the time a lender begins foreclosure proceedings until the property goes on the block at a Trustee’s Sale; the second stage is the Trustee’s Sale itself; the third stage is after the Trustee’s Sale, when the property, having received no bids, reverts back to the lender and is referred to as Real Estate Owned (REO). At each stage, you will be buying from a different seller, so you must tailor your approach accordingly. During pre-foreclosure, you are buying from the property owner who is unable to pay the loan; at the Trustee’s Sale you are buying from the Trustee (who is acting on behalf of the lender); REO you are buying from the bank or savings and loan association that made the original loan on the property.
PREFORECLOSURE: THE PROS AND CONS OF BUYING BEFORE THE TRUSTEE’S SALE
The principal advantage is in the seller’s motivation. Usually the property owner would rather sell than be foreclosed upon. However, while owners are motivated to sell, they must be contacted and at times this can prove difficult. Most property owners have been delinquent (in default) for a period of time so they have been the recipients of numerous telephone calls form the lender and, in many cases, from collection agencies as well. Don’t expect one telephone call to work. You need to knock on the door.
If you can reach the owner before the foreclosure sale and help solve his or her difficulties, you’ll find a motivated seller. Sellers are under severe stress so don’t expect them to welcome your first call. Persistence will, however, build a small amount trust that will open the door to negotiation.
This method of purchase is especially lucrative. One must follow and adhere to the Foreclosure Consultants Law without fail. The law is simple and straightforward. The California law appears to be one of the toughest in the country. This, like any other body of law, is rapidly changing and you should consult an attorney who is versed in this segment of real estate law as it applies to your particular state or area. This law is very specific and violators may be prosecuted and penalized. The penalties for violators appear to be excessive from the standpoint of someone who really is helping the troubled homeowner who, without the foreclosure buyer, will lose his home and receive no money. The Foreclosure Consultants Law was written to protect the homeowner and is, nevertheless, a good law. It’s a advantageous to understand the law because, once you learn it and use the proper legal contracts, the competition will be lessened. As with any law, if you learn to live within its boundaries you will not be penalized.
There are other good points about buying before the sale. You are helping the owner, and your help will be appreciated by the motivated seller who is wise enough to sell and save some dollars to take care of his family. Owners would prefer some money before the dale to nothing at the Trustee’s Sale.
The main advantage of buying before the Trustee’s Sale is that you get to view the inside of the home and are able to discuss and observe any damage that might require your attention and repair before you re-sell the property. This is an advantage that the buyer at the Trustee’s Sale doesn’t enjoy.
An additional advantage in purchasing before the Trustee’s Sale is that you will have time to review the market and appraise the property. Real estate brokers use the Multiple Listing Service (MLS) almost exclusively to find and evaluate property. The MLS is an excellent tool for comparing local values and prices and comparing neighborhoods and various sections of cities and town. The foreclosure market has no MLS. Foreclosures notices are listed in the legal newspaper, posted at the county court house, or published by one of the services that list Trustee’s Sales, defaults, and REO.
UNDERSTANDING THE LOAN DOCUMENTS
Preforeclosure property may be characterized as one of two types, depending on the type of documentation by which the loan was granted. The loan document will be either a Deed of Trust (Trust Deed) or a Mortgage. The legal requirements for foreclosing on delinquent loans are different depending on which document is used in your state.
THE DEED OF TRUST AS A SECURITY DOCUMENT
A Deed of Trust is a contact by which title to a property is conveyed to a Trustee as security for the repayment of a loan. This contract involves three parties. The Trustor is the owner who borrows from the lender, or creditor, who is called the Beneficiary. In order to control the property during the period of the obligation, “bare legal” title is held by the Trustee designated in the Deed of Trust.
If the borrower does not meet the obligations of the promissory note, the lender may initiate foreclosure. If the security document is a Deed of Trust, foreclosure may be sought through a Trustee’s Sale. If the security document is a Mortgage, foreclosure becomes a court action and the property will be disposed of at a Judicial Sale.
If foreclosure is sought as a Trust Deed, the beneficiary (the lender) sends a Declaration of Default to the Trustee who is then instructed to record a Notice of Default in the county in which the property is located. The foreclosure clock starts running when the Notice is recorded and the owner has three months in which to make the loan current. This is called the reinstatement period. At the end of this period, the Notice of Sale is recorded and published once a week for the following three weeks. At the end of this publication period, the Trustee’s Sale is held at the location set by the Trustee. The successful bidder or the beneficiary receiving the property at the Trustee’s Sale receives a Trustee’s Deed. Foreclosure using a Trust Deed normally takes about four months or 111 days.
THE FORECLOSURE OF A MORTGAGE VERSUS A TRUST DEED
It is important to recognize several differences in the foreclosure processes for Deeds of Trust and for Mortgages. First, the original owner of a Trust Deed retains no rights after the Trustee’s Sale, that is, there is no equity right of redemption as there is with a foreclosure mortgage. Conversely, nor does the original borrower have any further obligations to the lender, who may not pursue the borrower for any deficiency between the amount of money obtained at the Trustee’s Sale and the amount owing to the lender. However, if the property is foreclosed as a mortgage and the debt is not a purchase money installment, the beneficiary may pursue the borrower for the difference between the amount owed and the amount collected.
A mortgage is a contract by which property in the form of real estate is hypothecated (pledged without delivery of title) for the repayment of a loan. This means that the mortgage could very well qualify as the security document for the promissory note offered by the borrower. The mortgage, however, has a number of features that affect the usefulness of the document a security device should the borrower fail to meet the obligations of the promissory note. In order to understand those features, we must examine the mortgage in some detail.
A mortgage requires interaction between two parties, the borrower (the mortgagor) and the lender (the mortgagee). When the mortgagor borrows money using a mortgage, he does not relinquish title to the property even temporarily although not all of the obligations of the promissory note have been met. When the borrower defaults, the lender who expects payment must foreclose judicially, by court action. Judicial foreclosure is instituted by the mortgagee’s filling a lawsuit to foreclose. The mortgagor retains the right to reinstate the obligation up to the point of the court decree. This procedure could easily take the mortgagee a year or more. Further complicating the situation is the mortgagor’s right of redemption in my states. Different sates have different laws regarding mortgage and Trust Deed foreclosure. Review these facts with your attorney and title company. Even when the mortgagee has successfully foreclosed on the property by a judicial action, the property owner in many states is further protected and allowed a right of redemption as a matter of state law. The right may last a very short time, one month, or as long as one year. Under the right of redemption rules, the homeowner who lost the home at the foreclosure auction is allowed to redeem the property by paying the auction sale price plus interest to the new buyer and then taking control of the property. Because state laws vary, ask the trustee or your attorney about the details.
Do you own real estate articles or stories and want to share with other investors?
You have chance to win
$100 Amazon Gift Certificates. We will give
away 3 prizes for top authors each month!
Email your articles or stories to:
articles@buyincomeproperties.com
© Copyright 2001 - 2010 by
BuyIncomeProperties.com
Visit
Real Estate Forums
for every real estate investing topics!
Enter Here
Top of Page
|
|
