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Distressed Properties
distressed  "hard-pressed, hard put, in a bad way, in trouble
-- facing or experiencing financial trouble or difficulty"

  • Overview

  • Do's and Don'ts

  • Foreclosure

  • Short Sale    

  • Resources    

Be Advised!
Buying foreclosed property comes with its own set of hitches, hurdles and stress. Just because a house is deeply discounted doesn’t mean it’s necessarily a great deal. Here’s a snapshot of what to expect before, during and after foreclosure:

Pre-foreclosure: When an owner falls behind on mortgage payments, the bank makes the default public record. At this stage, foreclosure isn’t a certainty, but it is pretty likely. You can search the local county clerk’s office for houses in pre-foreclosure and make an offer directly to the buyer. There are some advantages to buying now rather than waiting for the house to go into the final stages of foreclosure. Not only will you have slightly more time to inspect the house and line up financing, you’ll most likely be dealing with owners who are still cooperative.

Short sale: Simply put, this is when sellers are willing to take less for their home than they owe to the bank. Buyers can find bargains in short sales, but they should also be prepared for some hassles. Because the seller’s bank needs to approve the sale it can add weeks, even months to the closing process.

Foreclosure

Auction: There are different styles of auctions, but most take place at the county courthouse, where properties are sold to the highest bidder. Houses at auction are priced to move — especially now that the market is flooded with foreclosures — but they’re also sold “as is” and with few or no disclosures. Many of these houses come with liens, which buyers have to pay before taking possession of the house. Making matters more difficult, former owners may still occupy the house at the time of auction. When they finally do move out, it’s not uncommon for them to pack up everything they can, including anything from appliances to copper plumbing.

Bank-owned property: If a house doesn’t sell at auction, it gets reclaimed by the lender and listed with a broker who specializes in so-called “real estate owned” property. This may be the easiest way to buy foreclosed property, but it’s not necessarily the cheapest. At the same time banks are eager to unload the property, they are also looking to recoup their losses. That said, don’t be afraid to flex your negotiating muscle, especially in this market. The longer the house has been sitting, the better your chance for bargaining.

 

Do's and Don'ts of Foreclosure

Facing a foreclosure is a scary thing, but there are things you should do – and shouldn't do – to avoid making the situation worse.

  • DO answer the phone and read your mail.
    Avoiding your lender won't make the problem go away. In fact, it will only make the problem worse. Your lender may be able to help you, so be sure to answer the phone and read any mail they may have sent you.

  • DO realistically assess your situation.
    Are your financial problems temporary? If you are temporarily out of work and will be fine once you find a new job, call your lender. Lenders may be able to offer a forbearance or repayment plan.

  • DO consider your options.
    If you are not in a position to keep your home, consider selling it before you face a foreclosure. If you have already missed a mortgage payment, call your lender. There may be purchase options, like a short payoff or assumption (see sidebar) that help avoid foreclosure.

  • DO be aware of certain financial responsibilities.
    Even if your lender sells your property, you may still be responsible for the difference in the sale price and what you owe. It is also important to realize that you may be responsible for certain taxes when a lender forecloses on your property. However, the IRS does provide tax relief in certain situations.

  • DO protect your wealth.
    Recognize that you may have significant equity in your property that must be preserved.

  • DON'T move out of your home.
    In order to qualify for assistance, homeowners are often required to be living in their home. Be sure to talk to your lender before you think about moving.

  • DON'T ignore the problem.
    It may be possible to keep your home, but if you wait to take action, fewer options will be available. You have certain rights and can take certain actions to help you keep your home; however, you only have a limited amount of time to assert those rights or take those actions.

    Talk to a lawyer or legal aid organization, since your rights vary from state to state. Most states and large cities have legal aid organizations; to find one near you, go to the Legal Services Corporation, a government-sponsored organization that provides high-quality civil legal assistance to low-income Americans.

  • DON'T convince yourself you can afford a home if you can't.
    Most lenders will only lend what a borrower can afford, but some less scrupulous lenders will allow borrowers to get in over their heads. In some cases, a home that was affordable becomes unaffordable due to changes in your life circumstances. If your mortgage is truly beyond your means, consider selling your home and purchasing a less expensive home or renting for a period of time before the only option left is foreclosure. Call your mortgage company; they may be able to help you avoid foreclosure by agreeing to an assumption or a short payoff.

  • DON'T fall victim to a scheme.
    Some people want to profit by your misfortune by offering to contact and conduct all work-outs and negotiations with your lender on your behalf – for a fee. View a helpful video Freddie Mac posted YouTube titled "Foreclosure Scams 101."

 


Guide to Avoiding Foreclosure

Whether you're in foreclosure now or worried about it in the future, we have information that can help.

Early Warning Signs of Foreclosure

  • Credit card debt out of control. Paying the minimum amount due. Maxed out cards.
  • Paying for necessities with credit cards - groceries, utilities, etc.
  • Cannot meet monthly financial obligations - choosing which bills to pay.
  • Borrowing from friends and family.
  • Loss of employment, or reduction in hours or wages
  • Major illness which can cause loss of work and an increase in health expenses.
  • Divorce, separation or other traumatic family or personal situations.
  • Death of a spouse or significant other.
  • Cannot pay the new Adjusted Payment on the ARM mortgage loan.
  • Major budgeted maintenance expense.
  • Excessive debt is the number-one cause of financial collapse and foreclosure.

The 9 Ways to Avoid Foreclosure

  • Reinstatement: Bring the loan current
  • Forebearance: Temporary repayment plan
  • Refinance: New loan with reduction in monthly payments
  • Loan Modification: Modify original loan terms
  • Sell The Property: Use equity to payoff or pay difference
  • Rent The Property: Must make the loan current
  • Short Sale: Negotialte with the bank to accept sale under the loan amount
  • Deed In Lieu Of Foreclosure: "Friendly Foreclosure"
  • Bankruptcy: Will stall foreclosure but not prevent it

Facing a foreclosure is a scary thing, but there are things you should do and shouldn't do to avoid making
the situation worse. Click here

There is a difference: Foreclosure vs Short Sale pdf

Loan Modification Tutor Read more

Financial Stability.gov Read more

Foreclosure-Response.org Read more

 


 
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