Due to last year’s volatile mortgage market, we have seen an increasing number of homes go into foreclosure. As adjustable rate mortgages continue to reset to higher rates with increased mortgage payments, we will see more foreclosures coming onto the Charlottesville real estate market. This can present a chance for the knowledgeable home buyer to purchase a home for a bargain price, but it is not without risk, and therefore it is necessary to understand the process.
Preforeclosure occurs when a homebuyer is in default on their mortgage. After three or more mortgage payments have been missed,and the homeowner has failed to work out a solution with their lender, the lender will issue a default notice to the homeowner and will also publish the notice in the local newspaper. The notice of default specifies a deadline for the homeowner to pay either the past-due amount or the balance of the loan. If the property is not reclaimed by the deadline, a notice of sale will be published, formally moving the home into foreclosure.
During the preforclosure phase may be a good time to purchase the home. This would be called a shortsale, when the homeowner is attempting to sell the home for less than the amount of the loan. Bank approval of the contract is necessary for this to occur. Although the price may not be as deeply discounted as it could be after foreclosure, there are benefits to buying at this time. To begin with there may be fewer competing offers at this stage. We are seeing multiple offers on foreclosed properties in the Charlottesville and Central Virginia area. Also the purchaser is negotiating with the property owner instead of with the bank. You are helping the homeowner avoid foreclosure and the ensueing black mark on their credit, so they may be inclined to cooperate. The homeowner will present the contract to the bank. Hopefully the bank will be negotiable and approve the sale rather than having to go through the expense of the foreclosure process. We are seeing many banks that are extremely slow to respond to these short sale offers so any buyer should be prepared for long delays before an answer.
If the home is not sold at this stage and the homeowner has not been able to work out a loan payment plan with the lender, the next step in the foreclosure process will be a sheriff’s sale or auction.