FIT Blog

Foreclosure is a term that is feared by any homeowner. It almost instantly leads to a vision of a defunct home with an overgrown yard – a home that has had its life sucked out of it. Yet, real estate investors often see this as a great opportunity.

Homeowners know they want to avoid foreclosure and investors know they may be able to save some money if they invest in a foreclosed home. But, regardless of your reason for finding your way here, you need to have a good understanding of what a foreclosure is so that you know what your next steps should be.

What Does Foreclosure Mean? 

In a nutshell, a foreclosure is the lender’s way of taking possession of a property that was used as collateral for a mortgage. 

A borrower may take out a loan to purchase a piece of property with the understanding that the funds will be paid back according to certain terms. When the borrower fails to follow through with the agreed mortgage payments, their account will be placed in default. 

The lender can then take steps to seize the property.

A Judicial Foreclosure

New Jersey, New York, Connecticut, Delaware, Pennsylvania, and others require that the bank and borrower go through a judicial foreclosure process. This means that a foreclosure lawsuit is filed with the appropriate court system. The homeowner will have a specific time limit to respond to the lawsuit and get caught up in payments to avoid losing their home. If the default is not cured, it can result in the home being foreclosed upon and sold. Judicial foreclosures can involve a long, drawn-out process. 

It is important to note that there are non-judicial foreclosures that take place in other states. These are often more straightforward and direct without requiring court involvement. In fact, they usually have a clause in their promissory note allowing them to give a warning and then auction off the house after a specified waiting period. 

Taking Action in a Foreclosure

A homeowner needs to take action when faced with foreclosure as doing nothing is going to end up costing them their home. Lenders have to pay out more money to push a home through foreclosure, especially in a judicial foreclosure that involves court costs and legal fees. So, many times they are willing to work with borrowers. 

Gathering up financial details, a discussion of the current situation along with an explanation of the struggle to pay the note can lead to a few different options. This is especially the case when the loan is first in default since loan servicers have to wait a period of 120 days from the date of delinquency before they can take action. And, courts want to see that they have made an effort to resolve the issue rather than just jump to foreclosure. 

A few different options include: 

• Asking for a forbearance
• Working out a repayment plan to get caught up
• Refinancing the property to lower payments
• Attempt a short sale

If no resolution is reached, the foreclosure will commence. And once it is filed, the homeowner will be required to leave the premises after a period of time, often anywhere between 3 and 30 days. 

How Investors Can Benefit From Foreclosures

While the homeowner is going through a struggle to keep their home, others see it as a potential investment opportunity. 

If approved by the lender, a homeowner may sell their property via a short sale. They will need to prove that the home’s value is less than the balance owed on the mortgage. The lender will receive all proceeds of the sale when it is done and the borrower walks away with nothing – except the benefit of not having a foreclosure on their credit. 

Investors can often get a home in decent shape for a great price in a short sale. This can be used as a rental property or even flipped for a bigger profit. 

Foreclosure auctions are also something that investors look for. These are often quick sales that can be bought for a less-than-reasonable price. However, they are typically sold as-is so due diligence on the property is important. 

Foreclosures at FIT Agency 

At FIT Agency, we are experts in the title industry – and we have a lot of experience with foreclosures, short sales, and everything in between. We work closely with lenders, servicers, and asset management companies on bank-owned properties to resolve title issues quickly.

Contact us today at 732-630-0900.