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This article is only intended as an
introduction to bank foreclosures. If you intend to bid on bank
foreclosures at a public auction, you should thoroughly study the
subject matter. Foreclosure is a legal process that is
initiated by the holder of a mortgage or lien
when the borrower is in default. The delinquent property is sold at
public auction to recover the lenders investment. Between 1 and 2
percent of all residential properties in the United States are going
through the foreclosure process at any point in time. Bank
Foreclosures occur for many reasons including job loss, divorce,
health problems, economic conditions, etc.
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Bank Foreclosures - Tax Foreclosures |
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Purchase Tax and Bank Foreclosures Below Market Value |
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Large National Foreclosure Data Base of Government and
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Bank Foreclosures Updated Daily with
Property Alerts |
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Click on the Picture Below to Learn More |
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When a borrower purchases a property and obtains a
loan, he signs two documents. The borrower signs a promissory note
that outlines the terms and conditions of the loan and borrower
obligations. A mortgage contract is signed that establishes
the property as collateral or security for the loan and a lien is
placed on the property. The mortgage contract is a legal
contract between the lending institution and the borrower that
requires the borrower to keep the mortgage payments current.
The borrower is in default when they violate the payment obligations
defined by the contractual agreement. The lender has the right
to accelerate the delinquent loan. The acceleration process is
governed by state law and requires the borrower to pay the full
amount of principal remaining on the mortgage immediately. It
is also known as calling the loan. Lenders will sometimes work
with the borrower to correct the delinquent payment problem.
However, if the borrower is unable to make timely payments, the
lender will begin a foreclosure process by accelerating the loan.
Banks may use several different methods to foreclose on properties.
Non judicial foreclosures are initiated by banks and lending
institutions and do not require court approval. States that
don't utilize a mortgage lien system allow lenders to use this
method. The property deed includes a power of sale clause that
gives lenders the right to sell a property when a borrower is
delinquent. Banks and other lending institutions prefer non
judicial foreclosures because they are faster and less expensive.
Borrowers have less time to correct their delinquency problem.
The delinquent property is just put up for sale. The
lender is not required to go through a lengthy court procedure.
Judicial foreclosures are required in states that utilize a
mortgage lien procedure. The lender petitions the court to
start foreclosure proceedings and the delinquent property is sold at
public auction. The foreclosure process can be long and costly
and the lender is not allowed to make a profit. They are only
allowed to recover their costs. If the auction bid is
greater than what is owed to the lender, the difference goes to the
borrower. If it is less, the lender may seek a deficiency
judgment against the borrower requiring them to pay the remainder.
The borrower is generally afforded a reinstatement period during the
foreclosure process. If the borrower pays the delinquency
amount, court costs and any late fees within a redemption period
defined by law, some states allow the borrower to reclaim the
property even though it was sold at auction. In summary, the
savvy real estate investor will have a good understanding of the
foreclosure procedure and redemption period used in their state. |
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Strict foreclosure is sometimes used to acquire mortgaged property.
A notice is given to the borrower and a deadline is established by
the court for payment of the delinquent debt. If the debt is
not paid by the required date, the court gives the lender title.
A deed in lieu of foreclosure or friendly foreclosure is an
agreement between the parties to convey fee simple ownership to the
lender without going through the foreclosure process. Even
though it is a friendly foreclosure, a black mark is put on the
borrowers credit history.
Bank foreclosures are sold at auctions. Lenders will
sometimes bid in the auction if other bids are inadequate to cover
the amount they have invested in the property. If they have
the highest bid, they will take title to a property and will usually
sell it at a latter date in hopes of recovering their investment.
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