Foreclosures 101

What is Foreclosure?

A foreclosure is the process that allows a lender to recover a portion of the amount owed on a defaulted loan by selling the property securing the loan. The foreclosure process begins when a owner/borrower defaults on mortgage payments and the lender files a Notice of Default or Lis Pendens. A by product of the foreclosure process are three possibilities to find bargains on Naples Florida foreclosure homes and condos.

1. Pre-Foreclosure or Short Sale
   Buying a Naples home or condominium in pre-foreclosure or short sale involves offering to buy the property outright from the owner/borrower. The lender will usually allow the borrower/owner to walk away from the property with minor damage to his or her credit report and the buyer can realize discounts of 10-30% below current market value and has time for due diligence.
2. Real Estate Offered (REO) or Bank-owned
   If the lender has taken ownership of the property, the lender will re-sell the property to recover as much of the unpaid loan amount as possible. The lender will then typically clear the title, but needed maintenance and repairs will have been neglected. Bank foreclosures become government foreclosures if the loan is backed by a government agency such as the Department of Housing and Urban Development (HUD) or the Department of Veterans Affairs (VA). In this case HUD or the VA are responsible for disposing of the property.
3. Public Foreclosure Auctions
   If a loan has not been reinstated by the end of the pre-foreclosure, buyers may bid on those properties at public auction. Buyers are normally required to pay in cash and may or may not have time to research the title and condition of the property; however, a public auction often offers some of the best opportunities for bargains and avoids the hassle of dealing directly with lenders/sellers.

Foreclosure Options

Reinstatement of Loan: Paying the lender everything owed in one lump sum including missed payments and late fees associated with those payments, foreclosure fees, legal fees and the principal owed during the period of delinquency. The lender will then reinstate the loan and stop the foreclosure. The homeowner will continue to make his mortgage payments just as before the foreclosure action.

Deed-in-Lieu of Foreclosure The borrower voluntarily deeds the collateral property in exchange for a release from all obligations under the mortgage. A Deed-in-Lieu of Foreclosure will not be accepted from borrowers who can financially make their payments.

Short Sale - A short sale occurs when the lender agrees to accept less than the face value of the mortgage when a property is sold, meaning the lender will release the lien securing the property upon receipt of less money than is actually owed. If the unpaid balance of a loan is $100,000 and is sold for $90,000, under a short sale the lender agrees to accept $90,000 as payment in full.

Home sold on the court house steps The worst option! Homes sold on the courthouse steps normally sell between %50 and %70 of their fair market value. If a bank suffers a loss due to a pending foreclosure action, they will usually file a deficiency judgment and pursue the amount of their loss plus associated fees.

Loan Modification - In a loan modification the lender adds late payments and fees to the loan balance and reinstates the loan. Some Banks will do loan modifications and some will not.

Forbearance Agreement - A Loan Forbearance is basically a payment plan. The lender may agree to take some of the back payments now and the balance within a certain period of time. ie: $10,000 in back payments and fees are owed and the lender agress to accept $4000 up front and $500 dollars a month for one year.