Anatomy of a foreclosure

Hello again!

A lot of people have been asking me questions about foreclosures lately. I think there area a lot of misconceptions out there so I thought I'd post something I've been sending out to all of my clients and prospective clients.

Real estate is something that interests everyone. When the market is down, it seems that there are even more opportunities for buyers. While this is true, I understand there is still a lot of trepidation. Even more so, I understand there are a lot of misconceptions.

Today, I want to address the idea of foreclosures.

It seems that, every time we turn on the news or listen to the radio, there is a gloomy report on the housing market. The concept of “sub-prime,” “ARM’s” and “foreclosures,” are big news all around. I think that has been giving a lot of prospective buyers a sense that, if they just wait it out, there are going to be loads of properties available for rock bottom, next to nothing prices.

This is a real misconception among many people.

One of the biggest sources are these infomercials that tell people they can make “big money” in foreclosures if they just follow the simple system that costs “x” amount of dollars. If that were the case, don’t you think everyone would be rich on foreclosed properties?

So, just to help you understand, (if you don’t already), a foreclosure is a pretty complicated series of events. It isn’t simply a matter of someone missing a payment or two and then being kicked out of their home. The foreclosure process can take a year or more in some cases and with the foreclosure rate rising, banks are actually starting to help people avoid the foreclosure process in a number of ways.

Generally, by missing one or two payments, the bank or lender sends an “intent to foreclose” letter. This notifies the homeowner that if they do not make the payments the formal foreclosure process will begin. By the 3rd or 4th payment missed, the lender has employed legal assistance in the matter and is filing the proper legal paperwork for foreclosure. At any point, the homeowner can stop the process by making the payments including any late fees and/or legal fees.

The homeowner also has other options. They can retain an attorney or even declare bankruptcy which effectively stops the bank and slows the foreclosure process considerably.

It is at this point that, many banks, are encouraged to work with struggling homeowners in an attempt to help them keep their homes. The lender can elect to restructure the loan, defer payments or set up a payment arrangement.

And remember, at any point during this process, a distressed homeowner can always put the home on the market and sell it!

The bottom line, for those facing foreclosure, there are many options. Couple that with recent programs the government and the Federal Reserve are sponsoring to keep people in their homes and foreclosures may not be all they are cracked up to be.

That doesn’t mean there aren’t opportunities.

The market has corrected in many ways and sellers have definitely become more realistic. Prices have moderated and come down; perhaps not as much in the Chicago area as they have in other markets but they have come down. In my opinion that reflects the overall strength of the Chicago area as far as real estate is concerned.

So the opportunities are there, you, as a buyer, have more negotiating power than you’ve had in at least 5 years. Prices are down to more reasonable levels. Money, while not as easy to borrow as it was, is still readily available at excellent rates to qualified buyers.

And there are also “short sale” opportunities. This is a, relatively, little known way for people facing foreclosure to get out of their loan. If you can find one, this can be a great opportunity for you as a buyer. Basically, a “short sale” is an agreement by where the seller’s bank/lender, review any offers and, if the bank agrees, will actually allow the seller to sell you a home for LESS than they owe on it and will absolve the seller of any deficit on the loan. These situations can be win/win situations for everyone. YOU, as the buyer, are often able to negotiate a great deal while the seller, who is facing foreclosure, is able to get out of their home and loan and their lender is able to cut their losses without having to deal with the expense of legal action.
Expect that, if anything, we’ll see more “short sale” opportunities in the market if it continues to be sluggish. All signs are pointing to a recovery as soon as Spring so it is definitely hard to predict exactly what we can expect