Welcome to Montgomery County Maryland & The Washington DC Metro Area!
Lisa Abrams The Abrams Group of Re/Max Realty Services 4825 Bethesda Avenue Bethesda, Maryland 20814 301-652-0400
What is Foreclosure?
Foreclosure is a process that allows a lender to recover the
amount owed on a defaulted loan by selling or taking ownership (repossession)
of the property securing the loan. The foreclosure process begins when a borrower/owner
defaults on loan payments (usually mortgage payments) and the lender files a
public default notice, called a Notice of Default or Lis Pendens. The
foreclosure process can end one of four ways:
borrower/owner reinstates the loan by paying off the default amount during a
grace period determined by state law. This grace period is also known as
borrower/owner sells the property to a third party during the pre-foreclosure
period. The sale allows the borrower/owner to pay off the loan and avoid having
a foreclosure on his or her credit history.
third party buys the property at a public auction at the end of the
lender takes ownership of the property, usually with the intent to re-sell it
on the open market. The lender can take ownership either through an agreement
with the borrower/owner during pre-foreclosure or by buying back the property
at the public auction. These properties are also known as bank-owned or REO
properties (Real Estate Owned by the lender).
Buying a property in pre-foreclosure
involves approaching the borrower/owner and offering to buy the property
outright. The borrower/owner can walk away with the equity in the property and
avoid a bad mark on his or her credit history. The buyer has time to research
the title and condition of the property and can realize discounts of 20-40
percent below market value.
If the loan is not reinstated by the
end of the pre-foreclosure period, potential buyers can bid on the property at
a public auction. Buyers often are required to pay in cash at the auction and
may not have much time to research the title and condition of the property
beforehand; however, a public auction often offers some of the best bargains
and avoids the unpredictability of dealing directly with the borrower/owner.
Bank-Owned (a.k.a. REO):
If the lender takes ownership of the
property, either through an agreement with the owner during pre-foreclosure or
at the public auction, the lender will usually re-sell the property to recover
the unpaid loan amount. The lender will typically clear the title and perform
needed maintenance and repair; however, the discount for these REO homes is
typically less than a pre-foreclosure or auction property discount. Bank
foreclosures can become government foreclosures if the loan is backed by a
government agency such as the Department of Housing and Urban Development (HUD)
or the Department of Veterans Affairs (VA). In that case the government agency
would be responsible for selling the property.
decided you have the knowledge and the resources to follow the foreclosure
marketplace, so the next step is, what are you going to follow? Procedures are
different for following pre-foreclosure compared to properties already
is everything! If you don’t know what properties are scheduled for sale,
you are wasting your time. You need to know what properties, how much the loan
and what timeframe you are dealing with. Local newspapers will publish the
scheduled for sale, this will provide some information and all you have to pay
for is the
newspaper subscription. You can also go to the county recorder and research
yourself, but the best way to follow these properties is to subscribe to a
obtains records and sells the information. The best services give complete, accurate
information and others provide the basic minimum, but it saves time spent
looking them up for yourself. Once you know which properties are in default,
you can approach owners
directly to sell, arrange financing to save the property or whatever seems
all the parties involved. Door-knocking, mailing information or telephone
all based on knowing which properties fit your criteria. You can find some
information at Pre-Foreclosure
Listings or you can go to the
sale sites in your area and ask the investors who show up for the sale what
providers are available. If they don’t want to tell you, ask someone else until
the information you need.
driven by numbers. Their non-performing assets do not generate income, they
require reserves to be set aside in addition to the loan amount and large
non-performing assets do not look good on the bottom line. So, if the financial
institution doesn’t really want to be carrying these properties, why don’t they
cheap? First, if a bank has a large portfolio of bad loans and they do not want
them on their books, they sell the loans as a portfolio at a discounted price
in that business. Second, if they have taken a property back and now own it,
they want to get as much as they can for it? It’s called cutting your losses.
If you want
to buy from a bank, find properties you might be interested in by either
auction sales or using a service that gives you fresh REO information.
information will allow you to put an offer into the bank before they will have
additional costs in the property and will be more likely to cut a deal. Your
opportunities are going to be properties that need a lot of work, have
with them, or that are in a slower moving market. Banks seem to take forever to
place an offer with limited acceptance period, wait out that period, then go on
things. Placing an offer at 60% of market value is something that probably
won’t fly. Be
realistic about the property, your requirements and the bank’s position and an
might be accepted.
Another possibility is to look for the dogs. Properties that have been on the
market for a
long time either are overpriced, are ugly or have some other problem. If you
problems can be overcome, a bank just might be willing to sell at a reduced