Definition of a Foreclosure
Simply stated, a foreclosure is when a mortgage lender assumes ownership of a property as a result of missed mortgage payments. For example, if a person is behind on his or her mortgage payments—that is that they have not paid the lender on interest or principal for a period of time—they lose the right to redeem a mortgaged estate. That ownership is most often granted to the mortgage lender (usually a bank), who then takes possession of the property. Upon the completion of a foreclosure, the homeowner may be susceptible to damage to his or her credit rating.
Types of Foreclosures
There are two types of foreclosures known as judicial and non-judicial. A judicial foreclosure occurs when the lender notifies the borrower of missed payments and the borrower fails to cure the default. The lender then files a lawsuit against the owner and a lis pendens is filed with the recorder’s office. The case is on public record and post trial the property is usually sold at public auction.
However, in a non-judicial foreclosure, the lender has a power of sale, which can be executed when the borrower is in default. In this type of foreclosure, you are also sent a notice of default, which is recorded in the county’s deed’s office, and are given a specified period of time to make up the missed payments. The difference with this type of foreclosure is that if you fail to catch up on payments, the lender will notify you of the sale of the property and will then be allowed to sell the property at an auction or list it in the Multiple Listing Service or MLS.
Foreclosure Process
The first stage in a foreclosure is known as a pre-foreclosure. This occurs on average three to six months after missed payments. At this time the borrower is put on notice from the lender that they are in danger of foreclosure. During this time, homeowners may either make up the missed payments or work with investors to negotiate a deal for the investor to assume the mortgage for a mutually agreed upon price. This stage presents the greatest opportunity to limit damage to a person’s credit.
If there is no resolution to the missed payments, the homeowner will receive a notice of sale. The process of this stage (as noted above) varies depending on whether it is a judicial or non-judicial form of foreclosure. In the final stage, the property is assigned new ownership to either the lender or an investor who purchased the property at the auction. Lenders will usually sell the house at a price lower than market value because more often than not there is some damage to the property either from vandalism or poor upkeep. The lenders are also eager to sell the property so that it is no longer their financial burden. In either case, whether an investor or a lender owns the property, experienced real estate agents can help negotiate the best deal.
Our Experience with Foreclosures
The Miami Condo Investments team is highly experienced in foreclosure deals. On average, we find that foreclosures take three to seven business days once the offer has been submitted to the bank. This quick time frame is due largely to the fact that banks are eager to quickly sell properties because they want them off of their books. We have also found that there is a major advantage to buying foreclosure properties that are listed in the MLS: the titles are free and clear. This is opposed to foreclosure homes purchased at auctions, which require intensive title research.