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There are two ways a property becomes bank-owned: 1/ the property was not sold at the public auction 2/ the deed to the property was turned over to the lender by the owners as an alternative to foreclosure. A property never reaches the auction because the owner experiencing severe financial hardship, tries to work out an agreement with the lender of the remaining mortgage obligation, called “a deed in lieu of foreclosure”. If the lender takes title to the property, and the property becomes its inventory, called Real-Estate-Owned. If you purchase a property at an aution, you may be responsible for unexpected liens and judgments. Most bank-owned properties are sold with clear title. While property sold at a bank auction, the price could be less than market value because it is set at the unpaid mortgage balance plus the back taxes, court costs and legal fees.
There is a big difference between a prequalificaton and a preapproval. A prequalification is not much more than an “over the phone” estimate from a lender of the interest rate, points and the maximum loan you can apply for based on your income and credit. Prequalifications are conditional upon everything – your income, credit history, the amount in your bank accounts…Nothing has been verified. A preapproval gives the borrower and the lender a much more accurate picture of the applicants’s financial status.
There are several questions you should be concerned:
How do you obtain access to the properties in order to conduct an inspection? What form of down payment is required? When is the closing date? Will I lose my down payment if I fail to close?
Who is responsible for major repairs? Will the bank provide any the financial assistance for repair? What is the status of the current occupants? Are there any outstanding utility debts? Outstanding utility expenses, repair costs, eviction costs and unpaid property taxes can be very costly.
How much is the bank attorney’s fee? Can the interest rate of the loan be locked in? Is there an origination fee and how much is it? Is there a prepayment penalty? What index does the lender use? What is the lender’s margin? Is the mortgage convertible to a fixed rate loan, and what is the procedure? Is the loan negatively amortized?
There are 4 types of foreclosure properties:
1/ Vacant and accessible: no one lives there. You can go inside and inspect.
2/ Occupied and accessible: someone lives there and you can go inside and inspect.
3/ Vacant and inaccessible: no one lives there and there is no access for you to do inside to inspect.
4/ Occupied and inaccessible: you better not to see those unfriendly occupant.
When you are the successful high bidder at an auction and you are awarded the sales contract, your first priority is to organized the final closing arrangements. Many mortgage foreclosure auctions require a 30day closing.
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