Almost every language has some unique words or expressions which distinguishes the language and makes it all the more tougher. While dealing with Real Estate and foreclosures there are a number of terms which make you wonder and stare more intently at the speaker in an instinctive attempt to demystify the jargon. Hence to bring a bit of clarity into the picture I have included a set of Foreclosure related terms and verdicts.
Foreclosure – Almost every individual including you and me dreams of owning his or her own house one day. As the property prices aren’t exactly pocket change, most of these would –be – home – owners tend to leverage (increase amount of funds by taking loan obligations) their investments and buy mortgaged properties. So in return for fixed payments every year the mortgagee gains funds to buy ownership of the house.
Now due to some reason the owner defaults and leaves the lenders with no direct way of getting back their fund. The banks lawfully have the right to possess the mortgaged property against the default of their loan. This scenario is called a Foreclosure.
Pre – Foreclosure – Before the foreclosing event, the bank send a notice to the owner that within a given period of time, if he / she is unable to payback their loan amounts, the bank will be force to foreclose the property. This is termed as the pre -foreclosure period. Within this period the owner also has the right to sell the land so as to enable prevention of foreclosure and also a blemish on loan records.
REO’s -So what happens to these foreclosures? Well the bank is unable to utilize it and doesn’t wish to take unnecessary efforts to do anything similar, hence it auctions the property at a discount to attract buyers who will buy the property and let the bank recover some losses. In case there aren’t any bidders for the particular piece of property at the auction then the bank lenders repossess the property. This is known as REO or Real estate Owned.
Foreclosures are of two types,
- Judiciary which is termed because of legal land transfer contracts and hence have a redemption period allowing the owner to reclaim the property by paying the required amount within the stipulated time.
- Non – Judiciary – Happens in case of a title or deed, whereas the auction process is a=handled by an independent third party and there are no redemption periods unless decided upon by the owner and/or buyer.
Foreclosure Verdict
I believe it is a good time to get into foreclosures as there are a number of properties up for auctions which being huge in number will make the property cheaper.
Interest Rates Verdict
Apart from the basic Demand vs Supply logic, the interest rates have been low for quite some time. This is a thumbs up for any real estate investor as it is going to be cheap to borrow money from the market plus given the low rates, people will start diverting money from their deposits towards other forms of investing of which real estate also plays a significant part.
For any investor considering investing through loans, now is as good a time as any other because of low borrowing charges and a positive market trend. There are numerous variety of loans each with its hits and misses, so choose wisely what loan would be the most suitable.
The loans which the investor can avail are
- Fixed Rate Loans – as the name suggests these loans have fixed interest rates throughout the tenure.
- Floating rate – these interest rates are variable in nature with changes matching the movements and scenario in the market.
- Fixed – Floating Combo loans – these loans are a mix of fixed and floating and hence start with a fixed rate and get converted to floating rates in between.
- Balloon loans – I also call these loans as abrupt halt loans as there is a certain amount of interest which needs to be payed till a period after which the remaining payment is paid as a one – shot lump sum amount.
Loan Verdict
Considering the low interest rates which have been prevailing in the market the most suitable loan is that of the fixed rates, as interest rates are highly doubtful of going lower.
