Hilton Head Real Estate Blog

What is “Deed in Lieu of Foreclosure”?

The Deed is a recorded document in which a borrower (homeowner) conveys all interest in the home to the lender to avoid foreclosure proceedings.

For many people facing foreclosure, it would be simpler to give the property back to the lender rather than having the home foreclosed on. It’s much better for the homeowner when it comes to their credit report. Another advantage is the homeowner can avoid going through the humiliation of a public auction as well as avoid a possible deficiency judgment.

What’s in it for the lender?

It saves the lender the cost of the foreclosure process and a lot of time. In South Carolina Judicial Foreclosures can take at least five months to complete. However, it can be very difficult to get a lender to accept a “Deed in Lieu”. Most lenders prefer to continue the foreclosure process. For a Deed in Lieu to be valid, it must be approved by all parties. So why won’t the bank or mortgage company take the expedient way out and simply accept a deed back? It’s the same result – they get the property to sell.

For the lender, the advantage of the foreclosure process is that it wipes clean any subsequent lien or loan against the property. A deed in lieu won’t do that, and the lender could be stuck owing money to a second mortgage or a judgment. To the lender, it’s worth the money and time to make sure that there isn’t anything lurking out there impairing the property.

For more information or if you have any specific questions, please feel free to call or email me anytime.

Carol Ivey (843) 290-5579 Cell

carol@carolivey.com

What is an REO or Bank Owned?

REO is an abbreviation for Real Estate Owned properties.

If no one purchases the property at the Trustee Sale, then the home becomes an REO property, owned by the bank. The main reason homes don't sell in a Trustee Sale is because it doesn't work out to be a good investment for a potential real estate investor.

A home that has been "foreclosed" and has become a bank owned property can then be listed by a Realtor who is hired by the bank to market and sell the property. To sell the house as quickly as possible the lender will remove any liens on title, and clear any other issues that may slow down the sale of the property. Generally, lenders are very motivated to sell these properties, as they are in the business of lending money, not owning real estate. REOs tie up their capital reserves and hamper their ability to lend money. Also, the management of these properties can become very costly. This is the best opportunity to find a good deal.

**Note: There are many homes out there for sale that are not distressed properties. The owners have a lot of equity, are motivated to sell and have priced their homes to move quickly. Distressed properties are not always the best way to find a great deal.

For more information or if you have any specific questions, please feel free to call or email me anytime.

Carol Ivey (843) 290-5579 Cell

carol@carolivey.com

What is a Foreclosure?

Foreclosure is the process whereby the lender takes possession of the property.

When a home owner fails to make the payments on his/her mortgage, the lender can begin foreclosure proceedings. Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan payments and the lender files a public default notice, called a Notice of Default or Lis Pendens. This is a very specific legal process with set timelines and outcomes. In a Short Sale situation, the home owner's name is still on title of the property and they are the official owners who are trying to sell the property. In a foreclosure, the lender takes possession of the property and as a result, the homeowner is no longer a party in the sale.

The foreclosure process varies somewhat from state to state, and depends primarily on whether the state uses mortgages (as South Carolina does) or deeds of trust for the purchase of real property. Generally, states that use mortgages conduct judicial foreclosures (like South Carolina), using the court system to execute the foreclosure; states that use deeds of trust conduct non-judicial foreclosures, using an out-of-court procedure defined by state law.

The foreclosure process can end one of four ways:

1. The borrower/owner reinstates the loan by paying off the default amount during a grace period determined by state law. This grace period can also be known as pre-foreclosure.
   
   
2. The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
   
3. A third party buys the property at a public auction at the end of the pre-foreclosure period.
   
4. The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take ownership either through an agreement with the borrower/owner during pre-foreclosure, via a short sale foreclosure or by buying back the property at the public auction. Properties repossessed by the lender are also known as bank-owned or REO properties (Real Estate Owned by the lender).

Foreclosures are NOT sold by Realtors. Foreclosure properties are auctioned at a Trustee Sale at the Court House in the County where the property resides. Foreclosure properties must be paid for in full, with a cashier’s check at the time of the auction. Only seasoned investors should consider this option. When you purchase a home at a Trustee Sale, you could be at risk of various problems that are normally investigated by Realtors and Title Professionals in normal sales transactions. These problems are serious!!!! Problems such as: Title problems, Superior loan pay offs, IRS liens, tenants or owners still occupying the property, and/or structural problems. The price may seem good at auction (priced well below other houses in the neighborhood), but your costs and risks may come after you try to take title. Properties that are a good investment are purchased by seasoned investors who find a way to get them before anyone else. Unless you really know what you are doing, this is the most risky way to purchase property!

For more information or if you have any specific questions, please feel free to call or email me anytime.

Carol Ivey (843) 290-5579 Cell

carol@carolivey.com

What is a Pre-Foreclosure?

A pre-foreclosure is basically a short sale or the sale of a home in which a Notice of Default (NOD) has been filed. The owners of the home are in default of the loan and are trying to sell the home before it is taken through foreclosure.

It's just a marketing term to attract attention to the property as being a distressed sale. Realtors use this term to create interest in possibly purchasing a home below market value. This may or may not be the case. Further research needs to be done on each home to determine the value.

For more information or if you have any specific questions, please feel free to call or email me anytime.

Carol Ivey (843) 290-5579 Cell

carol@carolivey.com

A short sale occurs when a lender agrees to take less than the full loan payoff for an owner's property. In most cases, the owner is in default and is not making their payments for whatever reason.

Short sales, in most circumstances, are the first step to avoid foreclosure. Although the lender(s) will recover less than the total loan amount in a short sale, they may prefer this in lieu of foreclosure. The costs of foreclosing on a property may be more than the bank's loss by taking a short sale. Also, the property may not sell at auction and then the bank would be forced to take it back as an REO (Real Estate Owned) property, which then they would have to maintain, list and sell themselves.

Short sales are very complicated and the outcome is not guaranteed. There are so many variables that I cannot cover everything in a couple paragraphs. The lender is not obligated to take a short sale and in most cases the process to get one approved is cumbersome and frustrating for the Buyer, Seller and the Realtors. Many times these requests are not approved by the bank and the property ends up going into foreclosure anyway. Banks are overwhelmed with short sale requests and the approval process can take months. Each bank evaluates each individual request on a case by case basis. Many times there is more than one lender involved. Not only do the banks consider the borrower's personal and financial situation, but they also consider an appraisal of the property, market conditions, the bank’s financial situation, their current portfolio and in many cases have to consult with an outside investor who purchased the loan at some point. Given all of these varying circumstances, you can imagine why this process takes so long. Most buyers do not want to wait out this long process and deal with the uncertainty.

If a short sale is approved, it can be below market (depending on the bank appraisal), but by the time it's approved the market may have further declined and it may not be a great deal after all.

Remember, if you have any questions, just give me a call or send me an email.  It's always a Beautiful Day on Hilton Head Island!

Carol Ivey

843-290-5579

carol@carolivey.com

Dunes Marketing Group

Mortgage lenders may require proof of your assets, income, credit quality and other financial information.

Here are some documents you may want to gather in case the lender needs them:

What you'll need

þ Federal tax returns and W-2 forms from the past two years.

þ At least one recent paycheck stub showing your name and Social Security number, the name and address of your employer, and your year-to-date earnings (some lenders will want the most recent month's worth of paycheck stubs).

þ Proof of other income: a second job, overtime, commissions/bonuses, interest and dividends, Social Security disbursements, VA and retirement benefits, alimony and child support.

þ List of creditors, including credit card issuers, student loans, car loans, child support and alimony. You may be asked to show proof of your minimum monthly payments and total balances, too.

þ Investment records: mutual fund statements, real estate and automobile licenses, stock certificates and proof of other investments or assets.

þ Canceled checks showing mortgage or rent payments.

þ Home sales contract, including the purchase price, if you've found the house you want to buy.

Not all lenders and loan programs will require all of this documentation, and borrowers with very strong credit scores may need to provide little or any of it. But having it handy may save valuable time during the application process.

If you have any additional questions about this or any other real estate transaction please email me or give me a call. It’s always a Beautiful Day on Hilton Head Island!

Carol Ivey

843-290-5579

carol@carolivey.com

Dunes Marketing Group