Frequently Asked Questions about Foreclosure Homes (FAQ’s)
Interested in buying a foreclosure home in Huntsville AL?
There are some things you should consider before buying a foreclosure property, bank-owned, REO, or short sale property. Working with the right Realtor can make all the difference in a good purchase or not. We’ve helped several buyers in the past when buying a foreclosure in Huntsville Alabama and surrounding cities and counties. Give us a call at (256) 713-9444 to discuss how we can help you make the right choice in foreclosure properties. Below are FAQ’s about foreclosure properties in general. If you have additional questions or concerns please contact us here.
- What is a Foreclosure?
A Foreclosure occurs when a homeowner misses his or her payments and defaults on the mortgage. Property in foreclosure is often referred to as “distressed” because the owner is in financial distress and is behind on his or her payments. The owner’s financial distress can be caused by a variety of unfortunate circumstances. This often results in a bargain buying opportunity for a well-informed home buyer or investor, who can end up helping the homeowner avoid serious credit problems.
- How does the Foreclosure process occur?
A foreclosure doesn’t just happen overnight. A typical foreclosure timeline can extend over several months. Each stage of the foreclosure process offers different types of opportunities for the buyer. The three stages of the Foreclosure process are (1) Pre-Foreclosure (2) Foreclosure Sale/Auction and (3) REO or Real Estate Owned by the Bank. Our site offers information and listings for all three phases of the Foreclosure process.
- What is a Pre-Foreclosure?
Pre-foreclosure represents the first stage in the foreclosure process. In this phase, the homeowner has missed at least one payment and is now considered delinquent on the loan. A pre foreclosure can also be referred to as a NOD (notice of default) or Lis Pendens, which is a formal warning sent to the borrower on a loan regarding the delinquent payment(s).
- What is a Foreclosure Sale (Auction)?
The auction is the stage of the foreclosure process after the pre-foreclosure phase of the property has ended. You can attend an auction (typically at the steps of the county courthouse) and bid on the home, just like any other auction. During an auction, the lender is now seeking to recapture its losses by auctioning the property in a public sale to the highest bidder. At an auction sale, buyers are typically required to pay in cash and have little time to research the property beforehand. However, an auction sale can offer some of the best bargains, often times as much as 35 to 50 percent below market value.
- What is REO Property?
REO stands for Real Estate Owned (by the Bank.) REO properties are another great opportunity to purchase foreclosures. The REO stage is the process after the auction, when the lender is either the successful bidder or there are no bids at all. In either case, the bank becomes the legal property owner and the property is considered a “non-performing asset” of the bank, which is a fancy way of saying the bank doesn’t want to hold on to the property. This means a solid buying opportunity for you, the homebuyer. While buying property from the bank is the easiest way to purchase a foreclosure, the savings opportunities are typically less than buying a pre-foreclosure or auction property.
- What is a HUD Home?
HUD is a shorthand term for the U.S. Government’s Department of Housing and Urban Development. HUD’s mission is to increase homeownership, support community development and increase access to affordable housing, free from discrimination, for low- and moderate-income Americans. When someone with a HUD-insured mortgage cannot meet the payments, the lender forecloses on the home, HUD takes ownership of the home and pays the lender what is owed. HUD then sells the home as quickly as possible, often at a discounted price.There is real potential for significant savings in buying HUD’s foreclosed property. HUD Homes are sold “as-is,” without warranty. That means that HUD will not pay to correct any problems. Even if a HUD Home needs fixing up (and not all of them do), it can be a real bargain! For example, HUD’s asking price on the home will reflect the fact that the buyer will have to invest money to make improvements. HUD might offer special incentives such as an allowance to upgrade the property, a moving expense allowance, or a bonus for closing the sale early. Keep in mind that on most sales, the buyer can request HUD to pay all or a portion of the financing and closing costs. Your real estate agent will have details. We encourage you to get the home professionally inspected before you make an offer so you will know what repairs you may have to make BEFORE you submit your bid.
- What Is An REO?
REO is an acronym for Real Estate Owned and is industry jargon for foreclosure property repossessed by banks or lenders. If a lender or bank is the highest bidder at a foreclosure auction — or if no third party bids at the auction — the property reverts back to the lender and becomes an REO. REOs are owned by banks. Lenders go to great lengths to sell REOs. For banks, however, bank-owned homes are a liability.
- How Can I Buy A Bank-Owned REO?
Anyone can buy a bank-owned REO. The challenge for real estate investors is to reach the person who can make the decision to sell the bank-owned REO property. Each lending institution has different rules and requirements on how they sell bank-owned REO properties. Contact the lender and find out what they require to purchase an REO property.
- Why Should I Buy A Buy Bank-Owned REO?
One of the primary advantages of buying a bank-owned REO property is that investors are purchasing a property without liens or other encumbrances. Before lenders make REO properties available for sale, they typically expunge all liens or claims against the property. Any cloud on the title — a second or third mortgage, mechanics liens, taxes or any other liens attached by creditors — are wiped out. Moreover, skilled investors can negotiate with the lender’s loss mitigation department to discount the price to a fraction of its market value. Besides negotiating price, many buyers of REO properties also negotiate favorable lending terms below existing market rates.
- What Are The Advantages Of Buying Bank-Owned Properties Or REO Homes?
For real estate investors and home buyers, bank-owned properties and REOs offer opportunities that are not available in the pre-foreclosure and auction phase of the foreclosure process. Buying bank-owned real estate offers the foreclosure buyer many advantages:
- Bank-owned properties are usually sold at below-market prices with great terms like low down payments and low interest rates.
- Buying bank-owned properties involves less risk and less competition.
- Foreclosures that are owned by banks are usually clear of any liens that may have been recorded against the property.
- Since the seller of REO homes is also the lender, you can negotiate with the bank to have them pay for all or some of the closing costs.
- Bank-owned properties are usually vacant because the banks have evicted the previous owner, saving the investor or homebuyer time, money and emotional toll involved in the eviction process.
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