Foreclosure is a process in which a lender attempts to recover the amount owed on an outstanding property loan once there is a default of payments. This is usually done by selling or taking ownership (repossession) of the property. The foreclosure process begins once the lender files a public notice of default (NOD), or in some states, a lis pendens (LIS).
Once a NOD is filed, the property officially enters a grace period known as pre-foreclosure (length determined depending on state). Pre-foreclosure offers the borrower an opportunity to do several things before the property is repossessed and/or sold, and ultimately reported on their credit history.
Should a loan remain outstanding once the pre-foreclosure period has ended, the bank then repossess the property to secure the loan. Usually, the lender takes ownership of the property with the intent to re-sell.
Good foreclosure deals are available, however buyers need to be cautious. It is crucial to work with a REALTOR® who is familar with local state foreclosure laws, which differ from state to state. In Alabama, there is a one year right of redemption. The former owner has the right to redeem the property for the amount of the foreclosure plus taxes, insurance, neccessary permanent improvements and interest. It is rare that this actually happens, but it can, so it is importanta to know the amount and date of the foreclosure.
To be considered a serious buyer, sellers want to know that you are financially positioned to purchase the property. Usually when submiting an offer on a foreclosure a pre-qualification letter is required to accompany the offer. You should work with a lender who has experience with the foreclosure process and who can guide you through the steps of dealing with this kind of purchase (if you don't have a trusted lender, your REALTOR® can recommend one). Your lender should provide you with a 'loan pre-qualification letter'. Obtaining financing information helps you understand what you can afford, and enables you to move quickly once you find a property that you want to purchase.
Whether you are a first-time homebuyer or experienced investor, it is always wise to work with a REALTOR® when dealing with foreclosures. When interviewing potential agents, be sure to inquire about their experience with foreclosure properties.
Most foreclosure properties are offered for sale through the local Multiple Listing Service. There are many different ways in which your REALTOR® submits offers. This is one way a REALTOR® with experience selling foreclosures can be invaluable. To gauge the potential bargain of any property, you need the property's estimated market value and the amount of the foreclosure.
This information is meant as a guide. Please consult a REALTOR® professional for more information on making a written offer.