Many people think if they buy a property under foreclosure they will be getting "a deal". Is this really the case?
The foreclosure process is one in which a lender can force the sale of a property where the borrower has not met his obligations under the mortgages. Particularly, if he is not making the payments under the mortgage, but also if the property is not being maintained or taxes have not been paid or insurance coverage has lapsed. If this is the case, the lender can start the foreclosure process.
Typically, the lender will send the borrower a demand letter and it will stipulate a time frame for the borrower to bring the mortgage up to date. If this is not done within the prescribed time, then the formal process of filing court documents starts. These documents must be served on the borrower, either personally or substitutionally, and he is given a period of time to file an appearance to advise the lender that he wants to continue to be updated on the foreclosure process. After service, the lender attends in court to ask the court for an Order Nisi and a redemption period. This redemption period is the time frame in which the borrower has to sell or refinance the property. Typically, if the property is worth considerably more than what is owed under the mortgage, then the redemption period is six months. If the property is worth the same or less than what is owed under the mortgage and the lender is in jeopardy of losing money, the court will shorten this period, sometimes as short as one day. After the redemption period expires, the lender can ask the court for the right to sell the property. It is at that time that the lender will have conduct of sale and can list the property for sale. All offers will be subject to court approval. Any offer to the court must be unconditional. It cannot be subject to such things as: the sale of your house, financing, inspection, or an appraisal. All these details must be taken care of prior to making your offer. You may think that the lender will accept any price so long as it covers their loan, but this is not necessarily the case, the court may not approve an offer that a lender has accepted.
Some of the considerations the court will look at will be:
- How long the property has been on the market?
- Have there been any other offers?
- How many showings have there been?
- Is the property vacant?
The court will want to have a formal appraisal to know the property’s value. If the property has not been on the market for very long, the court will look at “low ball” offers very carefully and in order to protect the borrower, the court may not approve the sale and require the property to be marketed for a longer period of time. However, if the property has been listed for quite some time and no higher offers have been made, then the court will be more inclined to approve the sale.
Just because a property is being sold by a court order does not mean you will be paying lower than market value. However, in certain instances it may be possible to get that deal you are looking for.