Real estate is a type of property like land, buildings with all natural and mineral resources on that property; real estate is a tangible asset. Real estate could be residential, industrial and commercial; with residential being less expensive when compared to the others, and commercial being more expensive and stable. Residential real estate are lands and houses of various styles and sizes for owners to occupy or give out for rent. Industrial real estate are factories, parks, mines and farms, which are usually bigger than other real estate types, with provision for access to transportation forms. Commercial real estate however, include offices, warehouses, malls and generally buildings for commercial purposes.
Real Estate foreclosure is a legal scenario in which a building or landed property can be repossessed. A foreclosure occurs when an occupant of a home or building is unable to pay the mortgage as specified; and during this period, the lender has the right to evict the occupant and sell the building as stated in the contract. The mortgage is a security for a loan and it is used to raise capital for individuals and businesses; the mortgage allows them purchase real estates without paying the entire cost at once. In the mortgage contract, the borrower pays the loan with an agreed interest for a period of time until he or she gains full ownership of the property being mortgaged, and failure to repay the mortgage will result in the lender reclaiming the property.
Real estate Pre-foreclosure on the other hand, is the early stage in which a real estate property can be reclaimed; in this period the lender of a property sends a default notice to the borrower informing them that legal action would be taken if the mortgage is not paid. The borrower therefore has to pay the outstanding debt to avoid a foreclosure.
THE PRE-FORECLOSURE PROCESS
When an individual or business wants to take ownership of a property, a contract is signed with a lender (i.e. the original owner of the property or a servicer) to allow payments monthly. The payment would include an agreed amount of installment (principal) and a stipulated interest on the property monthly; failure to make at least 3 months’ payment, the borrower of the property is then given a notice that he or she is in the pre-foreclosure period. Pre-foreclosure occurs when the borrower has failed to pay the mortgage on the property for 3 months straight. At this point, the borrower receives a legal notice which is made public, stating the default in payment and risk of losing the property after a certain period; the pre-foreclosure period lasts for a period of 3-10 months, after which the property will be reclaimed and put for sale.
HOW TO GET OFF A FORECLOSURE
If a home owner has gotten to the pre-foreclosure and is still unable to pay off the mortgage, there are a number of ways to get off the debt; some of them are:
- A homeowner can request a reinstatement amount from the lender
- A homeowner might request loss mitigation the lender, although the lender is not obliged to offer or approve it. Loss mitigation involves the borrower and loan servicer working together to avoid or delay a foreclosure
- The homeowner or borrower can sell the pre-foreclosure property with the agreement of the lender. In this case, the borrower the services of a real estate agent to quickly get buyers, and RealEstateCake’s platform is here to help connect you to your buyers.
MERITS OF A PRE-FORECLOSRE
During a pre-foreclosure, selling the property before the foreclosure period is usually a win-win situation for all parties involved; for the borrower: he or she is able to pay off the debt, for the buyer: he or she obtains a real estate property, mostly at a lower price, and for the lender: he or she gets the mortgage and does not go through the cost of pursuing a foreclosure
DEMERITS OF A PRE-FORECLOSRE
During a pre-foreclosure most times, the only way out for the defaulter or borrower is to sell the house or building, and most times the buyer might encounter several inconveniences after procuring the property; some of the demerits involved in buying a house that is up for a pre-foreclosure include:
- The buyer of the pre-foreclosure property may end up incurring the responsibilities of other outstanding debt such as: unpaid taxes or a property lien (a legal claim on a property which gives the holder access to property).
- The buyer could end up spending more on the property than necessary if the building is in a bad state. The costs of repair, renovation and maintenance is quite a lot
For the borrower, the inability to pay the mortgage will definitely lead to the mortgaged property being reclaimed, and at this point, the bank owns the property. To avoid taxes, insurance, and other expenses, the bank will mostly auction the property at a lower price
STEPS TO PURCHASING A REAL ESTATE DURING A PRE-FORECLOSURE
There are several ways to get a real estate property (e.g. a home), one of the best times is during a pre-foreclosure; the best part of it is the cost of the property. During a pre-foreclosure period, the home owner is most times under pressure and has no choice but to sell the house at any offer. You could even get the house for half the market value.
Finding a seller whose house is in pre-foreclosure could prove a little difficult as you have to surf the net, read newspapers or ask from place to place; however, with RealEstateCake, connecting with a seller is not a problem. To save money and avoid being a victim of fraud, the following steps should be taken when planning to purchase a house that is in pre-foreclosure
- PLAN YOUR FINANCES EARLY
Due to the nature of the property, it is advisable to prepare your finances to meet the payment at the shortest available time. This is because the home owner could lose ownership of the property if the pre-foreclosure elapses, therefore he or she would want a buyer who would meet up payment before the foreclosure period. Another scenario is that there would be no time to get approval for an extension of payment so it is better to plan before approaching a home owner whose property is in pre-foreclosure
- ACCESS THE PROPERTY
It is wisdom to access a property before buying to see it meets your taste and it is in good condition; most occupants leave the house in whatever state it was in before they leave. So if the ceiling was bad, they would see no reason to fix it when they are leaving. A potential buyer should properly survey the home to prevent any regrets; you do not want to buy a house, and then you spend a whole lot more in repairs, renovations and maintenance.
On the other hand, if you do not mind the state of the house, properly because you bought it at an extremely cheap price, you have to factor into your budget the amount necessary to put the house in the state you want
- AVOID COMPLETING DEALS ONLINE PRIOR TO SEEING THE SITE
This point cannot be over emphasized; you do not want to be scammed or buying more problems for yourself. Do not be pressured or tempted to complete the deal online without accessing the property for yourself. No matter how busy you are, or how far the location might be; see what you are paying for.
- SURVEY THE AREA
No matter how cheap a property in pre-foreclosure might be, where it is located is an important factor to consider; you do not want to go live in the bush alone simply because the owner is offering you a low price. Survey the area, is it a developed area or does it have prospects for developing in a few years, are they job opportunities? Can you get customers to pay if you want to resell? all of these should be factored into purchasing a real estate.
Having carefully carried out all of the steps above, you may proceed to purchase the property from the home owner, agree on a price and proceed to pay. However, if the property is on short sale (a scenario when the purchase price of the property is less than the outstanding mortgage balance), you would have to get an approval from the bank or lender to proceed to payment.
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