Procedure For Foreclosure Homes in Huntington Beach
Many people often ask about how a foreclosure works. It is a very complicated system, but this is a simple breakdown on the foreclosure process.
Sam owns a property in San Clemente and neglects to pay his mortgage, he will then get a notice from his bank after being 60 days late. This letter is often referred to as “notice of default.” The document essentially asks Sam to get current within his payments or his house will be foreclosed upon. Generally, the bank will give an exact date as to when the foreclosure will take place. For this scenario, lets say the bank gives him a year. Within that period, Sam has 3 options:
- Get current with his payments
- Sell his house in a “short sale”—aka ‘pre-foreclosure’
- Wait the full year and give the keys to the bank; foreclosure
Option 1 — Get Current
In this economic period, many people do not get current with their payments because they feel their house has depreciated and figure ‘why add more money’ to the property if the value is no longer there. If the borrower does not get current with his/her mortgage, below are a few of the alternative options.
Option 2 — Short Sale
A short sale is when someone sells their property for less than what is owed. In this situation, say the home is worth $500,000, yet Sam originally paid $900,000 and currently owes $825,000 on his loan. If the bank approves the sale of his home at $500,000, then he may list it with a Realtor and find a buyer. Fortunately, Sam is not entirely obligated to pay the difference of money owed. However, his credit will be severely dampened for 2-3 years. Sam will not be able to purchase another property within that time period—unless he pays cash. Apart from that, no lender will loan the money to someone that does not pay their mortgage.
Short sales are anything but short. They are a long process and the banks are typically portrayed as not being willing to help the situation. It can take weeks and months for a bank to even approve the sale and price of the property. You can often find a good deal with a short sale, but the headache is not worth it to some. Learn more about short selling your property here.
Option 3 — Foreclosure
Onto option 3, if Sam decides not to get current nor short sale his home, the bank will take procession of the property once the date has been reached. The property is then auctioned off at the court house steps of Santa Ana. A few investors each day reunited at 2pm at the Santa Ana court to purchase a home at the trustee sale. The catch? You need 100% cash to purchase a property. No loans. No Contingencies. Just a cashier’s check. Further catch? Even if you have the money to buy, at a trustee sale you inherit all the debt and liens with any property you buy. In today’s market, most homes that are foreclosed upon do not have any equity—they’re filled with owed property taxes, mechanical liens, liens on everything you can name! Although a beach front property in Laguna Beach may be offered at the auction for a starting bid of $150,000, you may be also purchasing all those hidden debts and end up paying over millions of dollars for a home that’s only worth $1.8.
If no one purchases the property, a bank (not always the same one) ends up acquiring the property and then lists it with a Realtor as an R.E.O. This stands for Real Estate Owned. An REO is also referred to as “post foreclosure.” REO properties are usually vacant, easy to show, and simple to work with in escrow. Like a normal sale, the bank has 3 days to respond to your offer as a buyer. In other words, unlike a short-sale, you can submit and offer to buy and get a response fairly quick. For agents and buyers, REO properties are extremely easy to work with as opposed to overly delayed short-sales. Learn more about buying a foreclosure here. You can also search foreclosure properties on my website.
As you can see, the word ‘foreclosure’ can mean a lot of things. It’s an umbrella term that can often be misused and misunderstood.
If you have further questions about foreclosures in Orange County, let me help. Click here to contact Tyler.