What are Distressed Properties?
Distressed properties are usually homes that are in danger of going into foreclosure or are going to be put on sale because the homeowner defaulted on his mortgage payments. A property is considered to be distressed when a homeowner is behind in his or her mortgage payments or tax payments. After the property becomes distressed, the tax collector, debt collector, government, or bank begins the necessary proceedings to sell the home in order to collect the mortgage payments or tax payments the homeowner owes. If you are going to buy distressed property, here’s what you should know:
The foreclosure process as applied to residential mortgage loans is a bank or other secured creditor selling or repossessing a parcel of real property (immovable property) after the owner has failed to comply with an agreement between the lender and borrower called a “mortgage” or “deed of trust.” Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said that “the lender has foreclosed its mortgage or lien.” If the promissory note was made with a recourse clause then if the sale does not bring enough to pay the existing balance of principal and fees the mortgagee can file a claim for a deficiency judgment.
Bank Owned or Real Estate Owned (REO)
The distressed property fails to sell at auction and is now owned by the bank, mortgage holder, HUD, Freddie Mac & Fannie Mae. These properties are usually what prospective foreclosure buyers will be purchasing and almost always sold in “As Is” condition.
When a borrower owes an amount on their property that combined with closing costs and commission is higher than the current market value, it’s a short sale.
4 Qualifications to a Short Sale:
- Need to sell
- Had a material change that has taken place since they took out the loan that prevents them from paying the mortgage
- Paying the mortgage causes distress
Let’s Bust Some Myths:
- Short Sales are virtually impossible to do.FALSE
- Most homeowners are better off filing for Bankruptcy or signing a Deed in Lieu of Foreclosure. FALSE
- Most Banks would rather foreclose and get the home back than do a Short Sale. FALSE
- Short Sales aren’t that prevalent. FALSE
- Distressed properties are only in the low end markets. FALSE
- Anyone can do a Short Sale as long as they owe more on the mortgage than the property is worth.FALSE