Everyone tries to hide financial failure, but when all-round funds crunch hits a family it cannot be hidden for long. First and foremost, the lenders pressurize you to fulfill your financial obligations such as the home loan installments falling due against the mortgaged property. When all your efforts to work out some arrangement fail, the lending institution or the bank ultimately takes legal recourse to acquire the mortgaged property to settle the outstanding dues.
The news spreads like wild fire within the neighborhood, and among friends and relatives. It is a lively subject for gossipmongers. Amidst the feverish gossip you can always spot some quiet but shrewd guy who absorbs every piece of the hot news with sharp ears. The very next day he may set out with a knowledgeable friend to inspect the property and to see what bargain deal he can get out of it. The quick and the ready usually strike gold in such distressful situations by taking some prompt and positive action, rather than wallowing in the vicarious gossip.
You may have heard of Jeff Adams, who often gives tips on real estate investments in online columns. He tells you the stark truth about foreclosures that throw up priceless opportunities to buy foreclosed properties at bargain prices at their auction sales.
When the Trickle Turns into a Flood
Sometimes the whole economy of a nation goes through the throes of a painful process of readjustment. It is the economy’s way of cleansing itself of the ill effects of the oversupply of certain commodities and services, proliferation of only the select businesses and industries, mindless investments and consumption, and the jobs and money markets going haywire.
The defaults on mortgage loans and consequent foreclosures become large scale during these periods of economic correction or recession. It is the time when several prized properties go under the auctioneer’s hammer often at highly discounted prices.
Housing Loans, Interest Rates and Mortgages
Buying real estate, either for self use or for investment purpose, is capital intensive and far beyond the accumulated savings of an ordinary fixed income earner. However, housing loans are easily available against the mortgage of the property after making a 10% to 20% down payment of its cost. The interest rates structure varies according to the deal. The property mortgages are mainly classified into three categories depending on the interest rate structures.
- Fixed Rate Mortgage Loans: Here the interest rate on the mortgage loan remains uniform during the entire term of the loan.
- Floating Rate Mortgage Loans: The interest rate on the loan is tied to that of money market.
- Hybrid Mortgage Loans: Here the interest rate is a combination of the above the above two
The interest rates have an overall bearing on real estate funding which in turn affects the decision to invest. The interest rates reflect the state of an economy’s changing business cycles. The monetary agencies of a nation also use interest rates as leverage by controlling the central bank’s prime lending rates, which will have a cascading effect of the money flow into savings and developmental investments.
The Process of Foreclosure
The borrower’s inability or unwillingness to pay any more instalments towards eventual liquidation of the outstanding mortgage loan triggers the foreclosure of the mortgaged property. This may be due to any personal or financial reasons such as: relocation, divorce, arrest or financial distress.
- Foreclosure: When the lender is convinced that no more recovery of the outstanding dues is possible, he initiates the legal procedure to acquire the mortgaged property. Such legal acquisition of the property for the purpose of recovering the outstanding balance of the loan amount is called foreclosure.
- Pre-Foreclosure: This is a legal notice issued by the lender to the loan defaulter stipulating the time period to settle the loan, failing which the lender will exercise his legal right to take over the mortgaged property.
- REO: The foreclosed property eventually goes to auction sale. In situations where the property fails to attract any bid in the auction sale, it reverts back to the lender. Such property is known as the Real Estate Owned or the REO.
The foreclosures are mainly of two types, depending on their judicial nature:
- Judiciary: Here the borrower is allowed a stipulated period of time to settle the loan and reclaim the foreclosed property.
- Non-Judiciary: Here the auction proceedings are carried out by a third party. No redemption period is specified without the explicit consent of the owner of the mortgaged property and0or the buyer.
Auctions of Foreclosed Properties
The foreclosed properties eventually end up in auctions conducted by professional auction houses. The lending institutions are not equipped to hold and manage the accumulation of such properties. They are also eager to square off the bad debts by quick recovery from the sales proceeds.
Online auctions by popular websites like Auction.com and RealtyBid.com have become a trend these days. The advances in IT Technology make it possible for these auctions to be conducted in a quick, fair, transparent and cost-effective manner.
All this opens a world of opportunities for an enterprising, but adequately cautious, small investor to go fishing for marvelous foreclosed properties going cheap at auction sales.
