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There is a lot being written about foreclosure and the sub prime lending problems recently but in Pennsylvania what is the process for foreclosure. Now, every situation is different and this is general information, so always consult with an attorney about your situation.
I will try to deal with both sides of the situation from a homeowner and a buyer's perspective. As Realtors we obviously do not like to see clients getting into situations that result in foreclosure. A good Realtor will make sure you are aware of the future costs of owning a home, but sometimes they have been doing this so long they forget what people do not know, such as maintenance and repair costs to a home. But if in doubt ask, your Realtor will always be happy to help you and answer any questions you have. There is no such thing as a stupid question, only the one left unasked.
Some situations are more serious than others and the best advice I can give you is, talk early on with your lender if a situation has arisen that might lead to problems with paying your mortgage. Most lenders would prefer to work with you than foreclose. Do not wait till you are a long way behind as there may be less options.
We recently heard of a local company that can help homeowners keep their homes and get back on their feet given certain fundamentals are in place, you can then either choose to stay in the home, or sell and move on. Yes, it does cost money, but far less than bankruptcy or foreclosure will down the road.
So firstly you enter a stage called "Pre-foreclosure" this is when you are in default on your mortgage, and lenders will typically react by making calls to the borrower. In Pennsylvania, where we are a lien-theory state, the deed to the home is held in the borrowers name and a lender will have to place a lien on the property by way of the mortgage instrument. You probably remember signing mortgage papers at closing which detail all the terms, how much you pay and when and what happens if you do not pay on time etc. Among this paperwork is the right if you do not pay to bring action against you in court.
However, embarrassed you are at this stage, now is when you call and talk to your mortgage company, do not avoid them the problem will only get worse. An attorney can advise you and possibly hold off for some period of time action by the mortgage company. The mortgage company may offer you an interest only option at an early stage, or reduced partial payment plan, or maybe it can be changed into a different program that results in a smaller monthly payment. By not calling, you are removing these options.
You may also during this period receive inquiries from private investors, as we mentioned above as the information is publicly available it is not difficult for potential buyers to identify distressed home owners. A word of caution here is that not all investors want to help you, many are simply looking for a profit at your expense and some offers are downright fraudulent. Always seek advice and do not feel pressured or sign anything with out showing the paperwork to your attorney.
If you do not send any payments to your lender during this stage the lender will issue a formal notice of default, specifying a time period in which the homeowner can reclaim the home by paying the past due amounts in full or the loan balance. I believe this period is 90 days in Pennsylvania. If this is not done then a notice of sale is issued which moves the house in to the final stage of foreclosure.
This final stage of foreclosure "Sale/Auction" is about another 270 days in Pennsylvania. You also are required to be 4 months in default prior to sale. Some lenders will auction the home via a real estate auctioneer, others will move through the courts and have the sheriff auction the property, this is generally decided by the lender. Some lenders may even opt for a short sale, which means the property is sold for less than the amount of money owed so that a non-producing asset is removed from their books. Remember as emotional as this is for you, it is often just a business decision for the bank or lending company executive dealing with it.
Generally once the notice of default has been issued the homeowner has run out of time, but keep talking with the bank as they may still be interested in working something out. as I said above, it is a business decision and they will look at any option that will save them money.
As a buyer investor purchasing a home at sheriff's sale can be fraught with problems. You probably will not have complete information on what you are buying, you are basically buying as is, without any warranties and you will not have been able to make any inspections. Other debts may surface later as liens on the title, and if the homeowners are still in the home you will have to deal with the eviction process and face the chance they may damage the property moving out. You also have to pay for the property, usually in cash as appraisers most likely will not be able to gain access to the property beforehand.
In some cases, a bank will end owning the property, it either does not sell successfully at auction and the lender evicts the homeowner and then markets the property through an agent. From an investors point of view this is a much better scenario, as the lender will be motivated to sell as they do not want to hold properties that require maintenance. Many of the risks are removed for the purchaser, taxes and liens will most likely be covered in a Real Estate Owned situation.
Here are some foreclosure resources on line:-
www.dontborrowtrouble.com sponsored by Freddie Mac this site contains education and shows how to protect your home and neighborhood from predatory lending.
www.foreclosure.com a fee based site for finding homes in pre-foreclosure, foreclosure, bankruptcy, FSBO and tax lien listings across America.
www.hud.gov/homes/index.cfm for HUD homes, these are 1-4 unit residential properties that have been acquired by HUD as a result of a foreclosure action on a FHA-insured mortgage. Details on how to buy a HUD home and how to get listings for each state.
www.ncrc.org/policy/predatory/lending.php the NCRC (National community Reinvestment Initiative) anti predatory lending toolkit provides community groups and consumer advocates with tools to challenge lending practices, this link leads to a pdf of the 2nd edition of the Home Ownership & Equity Protection Act.
www.realtytrac.com is a fee based service for finding foreclosure, auction, bank owned, FSBO, resale, mls listings and new construction properties.
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