Lessons from the Pros

Real Estate

So you think you know about foreclosures…

How much do you really know about the foreclosure process?  There’s probably more to know than you realize. Let’s see how you do.

Question 1:

What does the term “under water” mean?

Free Trading WorkshopA.  You owe more on your mortgage than your home is worth.
B.  You have missed one or more mortgage payments, so foreclosure proceedings can technically begin.
C.  ‘Under water” homeowners have abandoned their foreclosed homes and are often not able to be contacted by their lenders.

Question 2:

Can a bank ever hold a buyer personally liable if the bank’s deed of trust is secured against the borrower’s single family residence?

A.  Yes, almost always
B.  Yes, if the money was not used by the borrower to purchase the residence or the buyer did not live in the house
C.  No, a borrower has no personal liability if the banks’ Deed of Trust is placed against his personal home.
D.  No, houses are exempt from deficiency judgment.

Question 3:

If the holder of the second trust deed forecloses, does the holder of the first trust deed still keep its lien in place?

A.  Yes, always.
B.  Yes, but only if the first trust deed holder is a bank or other institutional lender.
C.  No, almost never.
D.  No, not if the holder of the second trust deed is a bank and the holder of the first trust deed is an individual.

Question 4:

Does the buyer at a trustee’s sale receive a deed to the property?

A.  Yes, promptly following the completion of the trustee’s sale.
B.  Yes, but only after the expiration of one year following the sale.
C.  No, the buyer must first petition the court.
D.  No, the buyer only receives a certificate of sale.

Question 5:

What is a “redemption period”?

A.  The 30 days after missing a mortgage payment in which you can still pay without penalty.
B.  The period of time after a home has been sold at a foreclosure sale that it can be reclaimed by the former owner.
C.  A grace period given by Fannie Mae and Freddie Mac

Question 6:

In most states, if you bid on a foreclosed property at an auction, you also may be bidding on tax liens and other debt accrued by the prior home owners.


Question 7:

Lenders stand to benefit when home owners default on their mortgage.


How did you do?

Question 1: A – Underwater means you owe more on the home than it’s worth.  Let’s say you borrowed $200,000 and put no down payment on the home, and then two years latter it’s only worth 180,000.  You would then be underwater on the mortgage.

Question 2: B – A borrower may be personally liable if he did not use the house for his personal residence. Also, a borrower may be personally liable if he refinanced the property. However, if the money is used to buy the house and then live in it, he/she isn’t   personally liable most times.

Question 3: A – The completion of the foreclosure on a second trust deed has no affect on the continued existence of the first trust deed.

Question 4: A – The buyer receives the deed from the trustee promptly following the sale.  Technically the trustee records the deed with the county recorder, the recorder then mails the deed to the purchaser.

Question 5: B – In some states there is a period of time that the house can be reclaimed. That’s the redemption period.  All the outstanding mortgage payments and all costs incurred during the foreclosure process must be paid.

Question 6: True – A title search should be done to determine if any liens or fees are connected to the property. You may discover; junior liens (second mortgages or additional claims against the property), or tax liens (unpaid property taxes).  This can take a deal that is profitable to unprofitable very quickly.

Question 7: False -Foreclosures are costly and time consuming for lenders. It’s simply not in their best interest for a home owner to default on payments or lose a home to foreclosure.

DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.

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