Foreclosure Secrets Revealed

What is an REO?

In Real Estate there is an old saying….everybody needs a place to live. Whether it be in a rental, a home you own, manufactured home, or trailer we all need somewhere to lay our hat. Because of that there are always ways to make money on properties no matter what the economic environment.

Right now we have a perfect storm when it comes to investing in Real Estate. We have record breaking low interest rates, and the lowest house prices in many, many years. Helping to fuel this down turn are REO properties.

So how does a property become an REO?

Well everybody makes mistakes, and when a banker is waving more money in front of our face than most of us make in years of working at our jobs it is very easy to ignore terms, like variable interest rate after 2 years. The well meaning banker says, “Well just refinance in 2 years, no big deal.” Then after those 2 years the cash they took out of their house is gone and their payment spikes $500 and the bankers are broke so there is no more money to lend. Puts people in a bad situation and causes a lot of foreclosures. And creates incredible opportunity for people who have lived within their means and now have some money to invest!

Most people don’t realize it takes a while. At least 3 months. I know of a couple right now that has been living in their home for over a year without making a payment on their loan. They are contacted every day by the bank asking for payment but the sheriff has yet to show up and force them to leave. That is perfectly legal by the way. They are allowed to stay until the bank files the necessary paperwork to instruct the sheriff to remove them. Most people leave well before that because the stress of collectors calling several times a day, along with never knowing if that knock at the door will be the sheriff coming to force you to leave, is just too much.

So say we have the Browns, dad was laid off, and now they are late on the mortgage let’s go through the process. First the banks have to inform them, they have not paid their mortgage. Then after about 3 months (it varies because all banks, like businesses, have different policies and procedures for handling this) the bank will start the foreclosure proceedings. They have to place ads in the local newspaper notifying other creditors that they are in the process of enacting their right as first lien holder to take the Brown’s property back for lack of payment. Some of the people that might be interested in this notification are their second mortgage holder.

Most people don’t realize if you have a second mortgage on your home and the first mortgage forecloses, the second goes away, they loose all their money. That is one of the reasons second mortgages have so much higher interest rates, there is so much more risk for them. Ok so it has now been 3 months and the first lien holder has notified the public, and the Browns have been sent a notice detailing the exact date their property will be sold on the courthouse steps. They really do that by the way. Watch your local paper and you’ll see the notices, then go to one. There is a representative from the county and it works just like an auction with highest bidder taking the property. You have to have cash though to buy it, no loans. Even before you are allowed to bid you have to provide proof you have the funds.

The Browns now have their sale date, the exact date their home will be sold. Is there anything they can still do to save their property? YES!!! They are allowed by law, until that property is sold at the courthouse steps, they are able to redeem it by paying that past payments and all the interest and fees for being late.

There are also ways of stalling the foreclosure. You have probably heard of people demanding the bank provide a copy of the note they signed. It won’t help them to get current, but will buy some time till they can come up with something else. For some people it is time to wait for the government to fix their problems, which I highly advise against. For most it is a way for them to stay in their home just a little longer.

Now the Brown’s property is sold to the highest bidder. They no longer own their home. This is where it can get quite dicey. The new owner is responsible for removing the Browns. A lot of people because they have gotten a great deal on the house will give the Browns some money for moving expenses.

I even have a good friend who buys these properties and frequently rents the home back to the previous owners. Sometimes for years, if they are good about paying their rent on time. In fact he has let many people eventually repurchase the home, given enough time to either fix their credit or come into some money. He even lets them repurchase at a greatly reduced amount. Remember the second falls off after the foreclosure so Bob can sell them the home much lower than he bought it and still make a nice profit for himself. So even with all the doom and gloom portrayed by the media frequently foreclosure helps people out of a really bad situation. One of the most stressful things in life is worrying about loosing your home, it breaks up marriages, splits families and it general, really sucks. I think this is why most people leave the home before it is ever sold. Just to be done with all the uncertainly.

To insure an adequate price for the property, the court has the power to deny the sale.