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The Stages of Foreclosure Home Sale

Aug 17, 2007
Regardless if the housing market is celebrating a boom, people always prefer buying houses available at foreclosures. Some people prefer to buy them right away, while some want to become investors. In both cases, bargains are available, but are not easy. There are three stages of foreclosure home sales, they are pre-foreclosure, auction and real estate-owned property or REO.

The first stage is the pre-foreclosure stage, where homeowners have defaulted on their mortgage payments. A period is provided to the pre-foreclosure homeowner to respond to the bank about whether he would be able to manage to pay back the debts or get a buyer for his home or property. Buyers and investors searching for houses in default should visit the local courthouse, where all the defaults are registered. These buyers and investors can directly deal with the homeowners to get a better price. Only a few pre-foreclosure bargains exist among the most desirable homes. Properties that are available at a 20 percent to 40 percent discount rate usually need repairs or are in unstable communities. At this stage, buyers have about 90 days to take action, after the default notice is posted and another 21 to 25 days, after the auction date is published.

The auction is carried out when the homeowner fails to settle the debts within the limited time allotted by the mortgagor. The foreclosure home is now opened for sale and is auctioned in the country courthouse. The highest bidder gets the foreclosure home.

However, not all auctions are held on equal terms and conditions. If the loan was guaranteed by the U.S. Department of Housing and Urban Development or HUD, then the department takes complete ownership of the home and sells it through a real estate agent or auctions it on the Internet.

In the case of the auction being hosted by the bank or private lender, the investors should not turn up without prior preparation. All investors should have a good knowledge of the state's laws and the details of the property. Finance is not the only problem for buyers at a foreclosure auction. In some extreme cases, some of the homes would still be occupied and the potential buyer has to deal with the eviction.

If the foreclosure home is not sold at the auction, the investors can buy it as a real estate-owned or REO property. Lenders and banks generally avoid the REO stage. For most banks, an empty unsold property is a non-performing asset. The longer a house remains unoccupied, the more its value depreciates. For such long pending foreclosure cases the bigger banks dont deal with the buyers directly and prefer to hand over the properties to real estate agents. However, smaller banks prefer to save on the commission and directly deal with the buyers. In either case, The REO procedure for the buyers is simpler and the property prices are flexible.

Experts suggest that even if the house is already bought, a buyer could send a letter to the bank president, offering him a higher price for the property. The bank may want a quick turnover, since it would help to maximize the profit. The fact remains that foreclosure homes are much cheaper and easily available.
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