If you’re an investor, you might be wondering if foreclosures are a good deal. Given that you can purchase these properties for a small percentage of their market worth and that certain Charleston property managers have profited greatly from the sale or rental of these properties, it makes sense. It’s critical to know the essentials of foreclosure before stepping foot in the foreclosure market. This will assist you in choosing future investment properties and managing your present rents, helping you to make wise selections. Let’s look at what you need to know about foreclosure thoroughly in the paragraphs that follow, from what transpires during the procedure to how it may affect your rental property business.
What is Foreclosure?
Once a borrower is late in paying their mortgage and the lender begins legal action to reclaim the property, the foreclosure process has started. Most often, financial hardships, loss of employment, divorce, severe sickness, etc. prevent borrowers from being able to make their monthly mortgage payments. Foreclosures can be driven by a lot of factors, but they always have the same outcome. When the owner ceases making payments, the bank or lender will often initiate foreclosure proceedings and reclaim ownership of the property.
The Foreclosure Process
Understanding how the foreclosure process functions will help you as a Charleston rental property owner or investor to make good choices. Consider the following essential factors:
Typically, the foreclosure process begins when a borrower has fallen behind on payments for several months. This informs the lender that an issue exists, who may therefore take legal processes to retrieve the property.
Phase 1: Pre-Foreclosure
The lender will go through several procedures before beginning the foreclosure process. If the borrower fails to make the two payments, then the lender writes a demand letter. Although some lenders won’t, most will make an effort to engage with the borrower to make up missed payments. These offers may be incorporated into the demand letter.
After 90 days of missed payments, a lender will often issue a notice of default. The loan is now routinely forwarded to the lender’s foreclosure division. Sometimes lenders will grant the borrower an extra 30 days to cover the missed payments and reinstate the loan. If no settlement is done, the lender will commence foreclosure.
Phase 2: Foreclosure
As is customary, state law governs the foreclosure procedure. The stages necessary to finish the foreclosure proceedings vary from state to state. All states, for one, have restrictions dictating the notices a lender needs to post, the borrower’s choices for avoiding foreclosure, and the timing and procedure for taking control and selling the property.
Lenders must go through a judicial foreclosure process in 22 states, including Florida and New York, to petition to foreclose on a property. Unless the judge confirms the lender’s petition to sell the property, the lender may proceed with the sale. The property may occasionally be sold at auction to the highest bidder by the local sheriff. In other instances, the bank will sell the house in other conventional ways.
The power of sale is a nonjudicial method of foreclosure that is used in the remaining 28 states, including California, Texas, and Arizona. Power of sale involves adherence to specific legal requirements, yet it is speedier and less expensive than a judicial foreclosure. Only when the borrower sues the lender does it usually end up in court.
Phase 3: Sale of Property
The final phase in the foreclosure process is the sale of the property, which occurs after the lender has taken possession of it. The majority of banks and lenders don’t want to own properties. Instead, they’d like to make up for their losses by selling them for cash.
Again, all lenders work in a unique manner. Others will immediately begin to sell the property at a sheriff’s auction. Furthermore, if the property does not sell or the lender decides not to put it up for auction, the lender will take possession of the property and add it to a growing portfolio of foreclosed homes known as real estate owned (REO).
REO property lists are widely available on the bank or lender’s website. For investors trying to obtain a cheap property, this may be useful. In these kinds of occurrences, the lender is eager to sell and ready to discuss a price below the property’s market worth. This won’t always be the case, however. To assess whether a property is the bargain it first appears to be, it is necessary for investors to thoroughly investigate the property.
How Long Does Foreclosure Take?
Especially between states that demand judicial foreclosure and those that do not, there are significant differences in the timeframe for foreclosure. The average time to foreclosure in the U.S. is around 922 days or 2.5 years. Different states will have varying averages. For comparison, the average time to foreclose in Tennessee is 270 days, whereas the average time in New York is 1,822 days.
Because lenders regularly try to negotiate with borrowers to avoid foreclosure and because they have so many legal requirements to meet, the process of foreclosure takes a long time. Instances such as lawsuits, downturns in the housing market, and other occurrences can make the procedure more complicated.
To buy and manage rental properties wisely, it’s vital to know the essentials of foreclosure. It’s important to understand how the process works and what potential problems may occur whether you’re wanting to rent out foreclosed properties or flip them to make some additional money.
It is also necessary to have a local market expert available, such as Real Property Management Charleston, to provide fundamental information and insight on any particular property. Contact us to learn more about the quality services we offer rental property investors like you.
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