Foreclosure,Pre-Foreclosure...Definition
With increasing number of foreclosure, bank owned homes you may run into the following terms while searching for your dream home. Here are the top ones with their definition.
There tend to be three stages in foreclosure process. These periods are known as preforeclosures, auctions, and REOs.
Pre-Foreclosure: term used by agents or sellers that are in the process of being taken to the courthouse steps since they have defaulted on their mortgage (didn't pay it). They want to sell the property before it gets foreclosed on, and oftentimes before it is taken over by the bank. Banks sell them on the MLS through Realtors
Short-Sale: Usually an MLS listed house that is on its way to being foreclosed on. The bank has agreed to allow the seller to sell the home for BELOW the loan amount. For example, a $500k home was bought with 100% financing. The market price is now $475k. The seller can a) bring $25k to closing or b) do a short-sale. With a short-sale, the bank eats the $25k, but the seller still gets a taxable 1099 for the difference. This process is seen as being better for the seller's credit vs bankruptcy and foreclosure
Third Party Approval- If you see this in a listing, it is probably a Short-Sale and it is warning the agent that some extra paperwork and time will be required.
Foreclosure: Technically a foreclosure is a house that is being auctioned off at the courthouse steps. Many people use this word incorrectly to represent a house that is in Pre-foreclosure, or has already been foreclosed on and taken over by the bank (see REO). Traditional foreclosures aren't occurring on the courthouse steps as much (see BusinessWeek Art) since the amount owed (the starting price for the auction) is TOO HIGH. So when the minimum price is too high on the courthouse steps, the banks take them over and sell them on the MLS through Realtors
Bank Owned (same as REO)
CURE – A “cure” is made prior to the Foreclosure Sale. If the property owner believes he can bring his past-due mortgage payments current (plus all costs and fees spent by the lender, lender’s attorney and the Public Trustee) he may file with the Public Trustee’s office a Notice of Intent to Cure AT LEAST 15 days prior to Sale Date. The owner then has only until 12:00 noon on the day PRIOR to Sale Date to pay all funds necessary to cure his mortgage default.
Reinstatement The stoppage of foreclosure proceedings and return to the original terms of a loan that occurs when an borrower pays off the amount in default on the loan to bring the loan payments current. The borrower’s chance to reinstate ends before the public foreclosure sale in most states.
Postponement An announcement – usually made at the time and place of the originally scheduled foreclosure sale – that establishes a new date and time for the sale.
Deed of Trust A legal document that dictates the terms of a loan used to buy a property and transfers the ownership of the property to a third party called a trustee until the loan has been paid in full. The trustee can sell the property to recover the remaining loan balance for the lender if the borrower violates the terms of the loan (i.e. does not make monthly payments).
Auctions, "Buyer's Premium": Some auctions require a 2-10% "premium" be paid on top of the winning bid. So if you bid $500k, you have to pay $550,000. In my opinion, it is a marketing trick that auction houses use to trick sellers by saying "you pay nothing, the buyer pays our commission." Just make sure you do the math, your NET is what matters.
Auctions, "Reserve price." Sometimes this is also a marketing trick. I have seen $700k listed houses have a $690k reserve. They get people at the auction all excited to get a deal. The auction ends and they say, "sorry you didn't meet the 'reserve price', here, how about a counter?" Sounds like a trick to find out who might be remotely interested in the property.
Auctions, "No Reserve." If you are an Ebayer, you know what this means. The product will be sold, no matter HOW low it goes. If you see "No reserve," it MIGHT be what I call a REAL AUCTION .
So if you run into the terms or have a questions I am just a phone call away.