In our presentation, we mentioned the different “off market” properties we can find on the real estate market in the United States.
Today we will review the different ways of acquiring distressed properties:
It is the legal process whereby the owner relinquishes all rights to the property.
When a buyer contracts a home loan , the lending institution arranges a mortgage to secure the loan. When the borrower is in default of payment, he has only two solutions: repay the sums due or sell his property during the period of Pre-Foreclosure which is called a Short Sale, or, If it does not succeed, the bank starts a procedure of “Foreclosure” in order to recover all or part of the sums owed.
The subject property will then be proposed at an online public auction organized by the County. If the property does not sell there, the lending institution repossess it: it becomes an REO (Real Estate Ownedor bank owned).
The process :
– If it is a payment default due to life accidents, such as the loss of a job, a death … the owner can eventually find an agreement with the bank to restore his situation and honor the regulations.
– If the owner finds himself “upside down”, which means that the sum borrowed is greater than the present market value of his house, he will have only two solutions: either to re-negotiate his loan with his bank (loan modification), or initiate a procedure of short sale, before being in “foreclosure”.
– If the situation persists for several months, a public notice is then registered with the county concerned, the publication is then official.
– After this notice, the owner has a “grace period” (between 30 and 120 days) to repay his debts or pay his mortgage with the sale of his house, this is called the PRE-FORECLOSURE. It is during this period that the “Short Sales” are negotiated.
– After this period, the bank will seize the county to initiate the procedure for sale at an online public auction of the property.
There are two types of auctions to differentiate:
• Public auctions: managed by the county on which the property depends.
• Private Auctions: managed by private internet platforms.
There are two forms of bidding:
Lender Confirmation Auction: This auction will not necessarily be awarded to the highest bidder but to the best bidder, the lender will nevertheless set a minimum price or reserve price.
– Absolute Auction: The highest bid wins the property with no minimum sale price.
In any case, the buyer to whom the property is awarded, will have to pay cash within a very short time (less than 24 hours for public auctions). He will have previously made a deposit (non-refundable in case of withdrawal or non-presentation of funds within a specified time).
On the other hand, the purchaser must ensure that the property in question is not subject to other mortgages with other creditors in which case he will be responsible for debts or mortgages contracted by the former owner of the property.
The short sales:
These are sales that occur during the pre-foreclosure period. In agreement with the owner, a buyer can make an offer for the real estate property and thus stop the process, if of course, the bank accepts this offer.