Frequently Asked Questions
FAQ's are a wonderful source of information. These questions and answers come from an array of different sources and are all directly related to the specialty of this site.
Q: What action determines if a foreclosure has been completed?
A: Foreclosure is completed when the mortgagee acquires title to the property, the Sheriff or Trustee's deed is recorded and status code 46 is reported to the Single Family Default Monitoring System. (resource HUD)
Q: I still don't understand how I can buy foreclosures or any kind of real estate without any money. Especially if I have bad credit or a bankruptcy.
A: You just have to be more creative with your financing. That is the great part about real estate; you can control property with very little money. One technique that works well is called "Subject To", or taking over a property subject to existing financing. So instead of applying for a loan the conventional way where they check your credit, debt to income ratios, and so on, you can take over the monthly payments and sell the house before it goes to auction. Or you can keep it as a "rent to own" and make a monthly cash flow. It's kind of like assuming a loan, except you are not paying points, loan fees, and so forth.
Another option is to use transactional funding. Transactional funding is used when you've negotiated a deal with the bank and plan on doing a back to back closing but don't have the money or good credit to fund the deal. The money is used to fund the transaction between the seller and you and then between you and your end buyer. You'll have to pay a few points, however you'd have to pay the same amount anyway if you were to fund it yourself... this way you're never at risk because it's not your money. It works very smooth. (resource Foreclosure University)
Q: Is it true banks can call a loan due if title is transferred to someone else without the lenders consent?
A: Yes, the lenders have the option of calling the entire loan due, (due-on-sale clause) but rarely ever do. Here is why: Banks are in the lending business. They make money by lending money to you. As long as someone is making payments to them, they most likely will not call the loan due. The only time you really need to worry about lenders calling loans due, is if interest rates went up dramatically. For example, if the previous owner was locked in at 6%, and interest rates have climbed to 12%, you can bet most banks want the higher interest rate and more than likely they would call the loan due just so you would have to refinance with them. So, can it happen, yes? Will it happen, most likely not? (resource Foreclosure University)
Q: I went to an auction. The house had 3 mortgages on it. The holder of the 3rd mortgage was foreclosing. The amount due was $100,000.00. The first and second mortgages totaled $200,000.00. The bidding was $250,000.00. Which mortgage gets paid first? Does the buyer owe $250,000 or $300,000?
A: At any auction, whoever is in 1st position will always get paid first. If there are any unpaid property taxes, those will also get paid. Whatever money is left over from paying off the 1st mortgage will now go towards paying off the junior lien holders. You can learn more about lien priority on our website.
Here is where you have to be careful. In some states, whoever is foreclosing has the option of starting the auction out at whatever they are owed. Then the high bidder has to pay off any senior lien holders. So if the 3rd is foreclosing and the opening bid is $100,000 and you bid, then you are responsible to pay off the 1st and 2nd. That is why you always have title checked before you ever bid or you will get what you asked for.(resource Foreclosure University)
Let's hope this auction included all the loans. If not, someone will be very unhappy they have to pay $450,000 for a property worth $250,000. If it included all the lien holders, then yes, the high bidder only owes $250,000. Then the 3rd lien holder, since they did not receive the full amount that was owed, has the option of filing a deficiency judgment against the homeowner for the deficient amount. Or they can 1099 the homeowner and count the loss as income towards the homeowner. (FAQ from Foreclosure University)
Q: How do I look at the interior of a house before the sale?
A: Authorization is rarely given to inspect the property, inside or outside prior to a trustee sale. If you are the successful bidder at the auction and thereafter receive a trustee’s deed to the property, you are the owner and would probably have the right to access at some point after the foreclosure sale. Each state has different laws concerning trustee sales and has variable allowances for property after a foreclosure sale. You should consult your own legal counsel to determine when or if you may enter and take possession of a foreclosed property. If the property reverts to the foreclosing lender at the foreclosures sale, then most likely it will soon be marketed by brokers for the foreclosing lender if there wasn’t another successful bidder.
Q: How may I contact the lender or property owner prior to the trustee sale?
A: Owner information will not be provided by the lender. Lenders do not usually discuss pre-foreclosure options with third parties unless they have written authorization to do so.
However, you may want to check and see if the property owner, or a tenant, is living in the house being foreclosed. Do Not Trespass. (The owner is in possession of the ownership of the property until the sale or the state law indicates.) Send a letter first to check and see if you can encroach on their property. Remember, the trustee sale is advertised at least three times prior to the sale and is public knowledge. Sometimes, the property owner is still trying to work out some kind of deal. Be empathetic and remember they are going through a Very Stressful time.
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