When homes on mortgage are repossessed, what happens is that the lender takes back ownership of the property. The lender can in turn sell it to another person. This is because payments may not be according to the terms of the agreed upon mortgage. Sadly, this usually happens when consumers buy a home they cannot comfortably afford.
For others, they have every intention of making those payments. However, turnout of events like death, divorce, health issues, the economy, loss of a job, or other life changing scenarios make them default in payments.
Generally, most lenders have some options for consumers when they get behind on a mortgage. This includes loan modification or special programs. For example, many lenders have assistance for those behind due to COVID-19. Lenders do not want to take back homes, they want their money. When that is done, or the borrower does not seek or apply for the assistance programs, the lender may have no other choice.
Why Do Banks Repossess Homes
Banks like to say that foreclosure is a last resort. You may have heard that foreclosure and eviction are expensive for lenders, and that lenders prefer to keep homeowners in their properties. If a homeowner falls behind on mortgage payments, he or she may be able to work out forbearance or a payment plan with the lender. If not, the lender will issue a notice of default, which puts the home on a path to repossession. There are still some Top Mortgage Lenders for Low Interest Rate and No Down Payments for First Time Home Buyers.
Repossession is never an automatic process it will hurt your credit report. However, in some states, repossession requires a lengthy notification period and an order from a judge. If a bank decides to undertake this process, it is because the bank cannot or do not want to work out an alternative with the homeowner in default. Even if that happens, you can still Rebuild Your Credit Score after repossession for missing payments. But this report will stay on your history for 7years.
Investors and homebuyers hunting for bargains may try to buy real estate-owned properties at foreclosure auctions, from the seller or from the bank. Banks will often sell such homes for less than the homes are worth because they want to escape the burden of keeping the homes and make a quick sale.
If you want to buy a foreclosure property, it is a good idea to work with a real estate agent with experience in the foreclosure world. Except you have plenty of cash on hand, you will still have to prove your creditworthiness to qualify for a mortgage.
Banks don’t necessarily put repossessed homes up for sale right away. They may choose to sit on the property instead, hoping to get a better a price down the road or simply allowing the property to fall into neglect. No matter how long it takes a bank to sell a repossessed house, the bank is responsible for maintaining the property.
Foreclosure Legal Process
A lender has to give legal notice about repossessing a home. It is often referred to as foreclosure. (Read the Perfection of Legal Mortgage for further explanation). A consumer must be behind three payments to start foreclosure on the loan. Notifications must be sent to the consumer explaining what will occur and when. Those notices are filed locally too. The home will belong to the lender if the consumer doesn’t bring the loan current by the set foreclosure date.
The lender can choose to sell it at that point.
The legal process may start after around three months of no payments on the home. It can take up to six months for the home to be repossessed by the lender. This only happens if the homeowner did not refinance the house/mortgage loan. At this time, those residing in the home will need to move out. If they don’t, they may get escorted off the property by law enforcement.
The legal process and the selling options for a repossessed home depend on where the house is located. There are state and federal laws that apply to foreclosures. Consumers have the right and the opportunity to fight foreclosure proceedings in court.
Some will fight to the end to keep their home. Whereas, others just give up in order to avoid additional stress and do not pursue options offered by the lender either. Whatever the case, it is very possible to Rebuild Your Credit Score After Repossession for Missing Payments.
Repossession Selling Options
Short Sell of Repossessed Homes
The lender has several options for selling the home. They may work with the consumer and decide a short sell is the best choice. This involves the lender agreeing to the home being sold for less than is owed. Such an offer entices buyers because they get immediate equity with the purchase.
A short sell gets the buyer out from under the loan obligation. The lender takes a loss but gets some of the money owed to them.
Repossessed Homes are Sold by Auction
The home will be on sale by auction. It has to be locally on list, with notifications on newspaper publications. The advert will give the date and time of the auction, and it is the highest bidder that gets the home. If the amount paid is less than what is owed on the home loan, the consumer can be held liable to pay the remainder to the lender. They no longer have any homeownership, but they can still be responsible for any balance due.
Speed of Repossessed Home Sales
The lender will work fast to get the home sold once they know the consumer can no longer keep it. Taking ownership of a home is the last resort; once it is in their hands, they want it sold quickly.
They aren’t making any money with a home in their possession, and they don’t want to pay for any upkeep of it. They don’t want to pay taxes or other legal obligations associated with a home. This is why they get it sold quickly, even if it is for less than owed on it.
While lenders will accept less than owed to them for repossessed homes, they cannot take huge hits repeatedly. They often have a reserve price in place. This is the opening bid amount, the least they will accept for the home. If they don’t get an offer for at least that amount, they will not sell it.
They may opt to hold on to it and list it with a real estate agency. It will take longer for them to sell it that way. However, it can be worth it if homes aren’t selling through a short sell or the auction options.
Lenders have preferences about the processes they consider to sell repossessed homes. That process will come down to the location of the home, how much is pending, the current market, and the lender’s decision.
Investing in Repossessed Homes
In such scenarios, consumers and lenders are in a hurry to get a deal in place for a home. Investing in repossessed homes can help you get a place to live for less than it is worth. It can be a way to buy homes to flip or own rental property.
Securing your funding to buy such homes quickly is important. If you don’t have cash, you can look into a line of credit. You won’t always have the opportunity to inspect such homes before they are sold. They are sold as-is and may need some work.
If the consumer was not able keep up with the payments, they may have to learn How to Remove Repossession Report Out of Your Credit Report to Boost Your FICO and pay for repairs or maintenance they did not keep up with. Investing in repossessed homes can be valuable, but there can be expenses to be prepared for. Some lenders will help you get a home loan for a potential repossessed property you wish to purchase. The home’s value can influence their decision to lend money.
If you are interested in repossessed homes, watch for short-sell listings in the area. Check your courthouse for legal filings and auction notifications of foreclosed homes. Also, check with real estate agencies and see what they have on their lists. Often, such homes are sold quickly, so securing your financing and understanding the process can help you get the property you are interested in.
Conclusion
The best and safest way to retain your home and avoid foreclosure is to constantly renegotiate the terms to accommodate your current financial state. By so doing you will definitely retain ownership of your home despite harsh economical outcomes.
Helpful Guides
- What is the Duration of Car Repossession on Your Credit Report
- Repo: How Long Does a Repossession Affect Your Credit Score?
- How To Get A Mortgage Loan: 7 Steps To Get Approved for Home Loan First-Time Buyer
- Can I Get a Car Loan with a Repossession on my Credit?
