At the post-foreclosure, the property has been foreclosed and taken back by the lender. These properties are known as real estate owned short REO’s or also bank owned. 

The easiest way to buy foreclosed property is by buying REO’s. These “real estate owned” homes always have a clear title, which saves time, expense and general worries about foreclosures. Real estate property owned by banks (REO) refers to a property that has gone through the foreclosure process. The bank or loan company has foreclosed on the property and it has reverted back to the lender. Any attempt to sell at pre-foreclosure or foreclosure auction has failed. 

When the bank owns the property, there is no longer an existing mortgage loan. If the property is still occupied, the bank will handle the eviction process, most typical the previous owner has already been evicted. 

However, if you buy the property and wish to allow the previous owners to remain as rent-paying tenants, you are free to do so. 

The bank will also pay off any amount due to homeowners associations and property taxes in arrears (an unpaid debt). The lenders usually don’t do any repairs and sell the properties in “AS IS” condition meaning it will remain in the condition it was in when initially repossessed. 

Considering that the prior owners obviously had financial difficulties for at least 6 to 12 months, potential buyers of REO’s should keep in mind that any major repairs needed would not have been done during this time. You should keep in mind the amount of money renovations will cost you to add to the amount of the purchase price to the bank.

Lets assume your find a REO which you would like to purchase keep in mind banks do not usually provide financing on their REO’s. 

However, it would be especially helpful to obtain bank funding if there was extensive damage to the property they are selling “AS IS”. If, based on the information you have received from your realtor, you are satisfied that the market value of the property meets your expectations and you have made an initial offer to the bank, be prepared for them to provide you with a counter-offer. 

The usual procedure for REO’s is that the bank will ask you for the full listing price, because REO’s are mostly already listed under market value. Before you put an offer on REO listing make sure you have a proof of funds either for a cash transaction or an approval letter from your mortgage broker. Remember that banks are closed on evenings, weekends and holidays. They usually have a department devoted especially to REO’s and decisions are made usually between 2-7 business days.

Stop Foreclosure

Foreclosure is not a word that any of us wants to hear, let alone think about the process happening to us. But, financial hardships may befall the most responsible people and the foreclosure process may look more and more like it may happen in your life or the life of someone you know. 

Thankfully, there are some things that you can do to stop from being foreclosed on. Stopping foreclosure isn’t easy, but if you are well informed you can prevent loosing your home. 

First: talk to your lender, it is important for your lender to know why you missed your payments and why you request a recovery plan from them. It’s always better to approach the lender early, even before you missed your first mortgage payments. 

Second: seek Counseling; or contact counseling agencies that are approved by the US Department of Housing and Urban Development. Call 1-800-569-4287. 

Third: always watch out for fraud; many of the HUD firms offer their service at no cost or charge a minimum fee of no more than $100 to process your paperwork. 

Fourth: be aware of those refinancing options; if you’re having problems paying off your current mortgage, it is unlikely that a new higher mortgage would help you in the long run. Yes you might get some money out but would you be better off? Fact is that a foreclosure is costly to your lender as well as the families facing foreclosure. 

The Homeownership Preservation Foundations was created to help reduce foreclosures and preserve homeownership for American Families in crises. Please call them toll free; it is a 24/7 hotline for homeowners in need of foreclosure counseling. The number is 888-995-Hope (4619). The non-profit organization is staffed by special trained foreclosure counselors working for one of four HUD-approved counseling agencies.

What happens when you just walk away

Thousands of homeowners are simply abandoning their homes before foreclosure even begins. The lending industry calls it “jingle mail”, keys that arrive in envelopes from homeowners who decided they rather walk away than face the humiliating short sale or foreclosure proceedings.

Nobody was mailing in the keys when property values were rising. Thousands of people are abandoning their homes even before the bank starts to foreclose, realizing they just simply can’t make the payments anymore. For some, it’s payments that are about to reset hundreds, if not thousands, of dollars higher. For others, it’s the loss of a second paycheck, because a family member lost its job. 

Yet their problems are really just beginning when they shut the door for the last time. Banks report the loans delinquent, then seize the properties and foreclose. Like it or not, there will be a black mark on the homeowners’ credit records that could affect any other credit they have, their car insurance rates, their ability to rent a home or apartment, even their job prospects. 

Federal Reserve Chairman Ben Bernanke recently estimated that about 45% of foreclosures in 2007 were on private, near-prime or government-backed mortgages. That means plenty of people who thought they were fine are facing catastrophes, they never expected that their homes would be worth less than the purchase price. The median first-time buyer put down less than 2% to buy a house in 2007, according to the National Association of Realtors. Many put down zero money, even borrowed money to pay the closing costs. If you didn’t put anything down, it’s much easier to walk away, easier but it still ruins your credit badly.

Often the problem isn’t that the homeowner’s finances are in trouble. It’s that the mortgage is too high, and it’s taking up too much income.

Homeowners should consider free services before paying a third party. We often pay for services that we can do ourselves. 

The Consumer Federation of America recommends HopeNow, a coalition of lenders and credit counselors that outlines options for homeowners. 

Many former homeowners live in a rental now and their credit is ruined. 

What happens when you walk away? Not to consider counseling is just giving up and means losing even more. Mailing back the keys or leaving the keys on the counter does nothing to change the foreclosure process or its damage to your credit history. There is some kind of irrationality to people’s judgment, thinking they can avoid a penalty. Penalties start to show long before the home enters foreclosure proceedings; late payments are recorded on credit records at 30, 60 and 90 days every time a payment is late or not paid. Just one missed mortgage payment deducts 100 points off your credit score. Every missed payment thereafter compounds even more damage. 

A notice of default typically comes after the third missed payment, delivering a blow to the homeowner’s credit. Three months after the notice of default, the lender sends out a notice of sale to the highest bidder and the foreclosure is etched on the homeowner’s record, usually for seven years. 

In many states, the former homeowner is still liable for the unpaid balance even after the sale. Some lenders will agree to take a house back and release the borrower from the mortgage, a process known as deed in lieu of foreclosure. It does have the benefit of being more attractive to the lender than a costly foreclosure, especially if the amount owed isn’t drastically more than the house is worth. Still it has the same effect on your credit scores, a cut of 200 to 300 points. 

A short sale, in which a buyer agrees to sell a house for whatever he can and the lender agrees not to pursue him for the balance, and which shows up as a settlement on credit reports, is no better to a credit history because it usually comes long after the loan is in trouble. The outcome on the credit score is dramatic, and it goes through every inch of the borrowers’ financial live. Former homeowners will be unable to get new credit at reasonable rates, and issuers of their existing credit cards can raise interest rates because they are considered greater risks. 

It may prevent you from buying or renting a house. It even could prevent you from getting a job. In some States, insurers calculate a risk score from the same data used to figure credit scores, as lower the score, as higher your rates.

Do you want to stand and fight?

Homeowners have only a few options for keeping their homes. Do a loan modification. A modification changes the terms of the original loan, for example extending a discounted interest rate or rolling late payments back into the loan. A lender must agree, but it would still be a better deal for a lender to keep the homeowner in the home at the level they can afford rather than forcing them into foreclosure. 

Another option for homeowners is Chapter 13 bankruptcy, which stops the foreclosure process temporarily and gives the borrower time to work out a repayment plan. Your lender doesn’t want your home. Lenders are in the lending business and not landlords or property manager. 

The foreclosure or bankruptcy may take 7-8 years to drop from your credit report, but you can begin to rehabilitate your credit almost immediately. If you immediately start doing on time payment you can redevelop your credit score to near-best levels in 3-4 years. 

Lenders and credit institutions may not lend you any money for a few years after a foreclosure or a bankruptcy, but predicting future lending conditions in today’s market might be difficult since so many people have been and still will be going through it.