Foreclosure Terms: Which is Which?

Pre Foreclosure or Foreclosure: There is a Difference

The public keeps hearing about the foreclosure problem the our country is facing but, they also hear that they are great investment opportunities. Have you heard the same?

What people haven't been hearing about is the difference between a "Pre Foreclosure" and a "Foreclosure." I will cover "how to find pre foreclosures" in a separate post.

The media simply has people confused about foreclosures. Thankfully, it is really very simple. Let's take a look at each one.

Pre Foreclosure

A "pre foreclosure" means that a property is delinquent and the lender has either filed to foreclose or they are about to file to foreclose. The homeowner still legally owns the property and are the owner of record.

When a lender forecloses on a property, what they are actually doing is legally repossessing the title. A borrower is allowed to be the legal owner for tax purposes but, if they fail to make the payments, the lender will foreclose to gain legal ownership of the property

When you hear about the "good deals," they generally are referring to pre foreclosures.

Foreclosure

Since Pre Foreclosures are owned by the homeowner or borrower, a Foreclosure is owned by the lender who has legally foreclosed on a property and are now on title.

Once the lender becomes the legal owner, the property becomes what is known as an R.E.O. property. It stands for: Real Estate Owned.

If a mortgage was secured by VA or FHA, the foreclosing lender actually sells the property immediately after the auction to VA or FHA. The property is then turned over to HUD and those become what are known as "HUD Houses."

Most of the advertising on the Internet for foreclosure lists, are actually properties that have already been foreclosed on and are bank owned REO's.

Among the products offered by Foreclosure Listing Service is the Pre Foreclosure list. It lists the name of the borrower, property address, loan dates, lender, trustee, legal address and more.

For more information on how you can obtain a pre foreclosure list, click the following link and I hope this post has helped clarify any public confusion.

http://flsonline.com

-George Roddy Sr.

President, Foreclosure Listing Service

Addison, Texas

Myths About Foreclosure

This article was written by a former Foreclosure Listing Service instructor, Jim Watkins.
He does a good job of explaining how investing in foreclosures can really be.
-George Roddy, Foreclosure Listing Service
_________________________________________

Myths About Foreclosure

Please note that my area of expertise is in the State of Texas and the statistics contained in this article should not be relative to other states.

The following question was asked on a local Dallas Real Estate Board about foreclosure deals...
"So where are these great deals!! Inquiring minds want to know :confused"

Here is my relpy...

All you need to do is wait at home because the foreclosure deals are set to be delivered right to your front door! Packed with equity and eager homeowners ready to leave their homes in tip-top condition!
WRONG
I feel this is a good time to relay a little bit of REALITY.

The Myths of Foreclosures:
1. Foreclosures represent great deals
2. Houses in foreclosure have a lot of equity
3. Homeowners are never at fault
4. Homeowners are Motivated to sell
You DID note that I said Myths? I.E. Not true.

Ok here are my comments to the Myths. Or in other words.... here is the reality of foreclosure.

1. Foreclosures represent great deals
No they don't. In fact ony HALF of all properties posted for foreclosure, make it to the courthouse steps for the auction. Of the 50% that go to sale, only EIGHT percent (8%) are offered with an opening bid that has enough equity to warrant a bid. That means 92% of the properties at the sale, go back to the lender.

2. Houses in foreclosure have a lot of equity
Not true. While the total number of properties posted for foreclosure skyrocket, the equity (in Texas) hasn't. The recent loose lending habits allowed many owners to borrow up to 100% and some allowed the closing costs to be rolled into the loans! Interest Only loans also have contributed to the problem (granted Texas hasn't had as many as other states). Texas hasn't appreciated like elsewhere. The result? The owner loses the house.

3. Homeowners are never at fault
Yeah, right!
According to Foreclosure Listing Service, Inc. in Addison, Texas (http://flsonline.com/), the top three reasons for foreclosure are:
Divorce
Loss of Job
Health
I agree with those being the root problem. However, I know a lot of people that got a divorce and didn't lose their house. I know a lot of people that got laid off but didn't lose their house. I know a lot of people that have had major health setbacks but managed to not lose their house. The top 3 reasons are what starts off a series of Poor Choices!
In my experience, only 1 out of 25 homeowners that are in foreclosure, are there for reasons other than poor choices. The one that comes to mind was a couple that I consulted in Richardson. The woman was a smart, well dressed, Paralegal of all things. Her husband was an INS Attorney. I was baffled and asked how they got to the point of foreclosure. She said, "My eight year old daughter has a brain aneurysm. She has been in and out of hospitals since she was five. I understand the bank has to protect their position at some point but, any money we have had access to, has gone to the care of our daughter." I wanted to disappear into thin air right then. More than I ever had before. THAT scenario, I think anyone would understand.
That coulple is the ONLY one out of hundreds of owners in foreclosure that stands out as someone I can reason with. The vast majority of the time, it's brought on by poor, bad or just dumb choices.
It's easy to sit and say, "I feel so bad people are losing their houses." Let me twist it a little and ask, "If you had given someone the money to buy a house and they failed to make a payment in TEN months... would you still feel the same way?"

4. Homeowners are motivated to sell
This is, in my opinion one of the largest myths in the business. We all agree that the general public dislikes attorneys, right (personally, I feel that my work could not be done without them)?
If that is true, and and most homeowners are in denial, then why do over 40% of the owners in foreclosure, file for Bankruptcy (Chapter 13 is most common and Chapter 7 is filed on occasion)? A lawyer is usually the one that files on behalf of an owner. Oh wait, the owner isn't in a right state of mind so why would they willingly go to an attorney? Simple. Bankruptcy lawyers help people stay in their house by getting it protected in Bankruptcy so the lender can't proceed to sell the house at the auction.
Before the Bankruptcy laws changed in October of 2005, nearly 60% filed for Bankruptcy. SIXTY!

Maybe I am wrong in my analysis though? On second thought, yes. Homeowners ARE motivated... To KEEP their home. Not house. It's their home. Who lives in homes? People. While this business is about buying and selling houses, we tend to overlook that people live in those houses. So actually it's a business about people.

Treat them right. Don't take advantage of their situation as some have before. Talk to them. Let them know what options they may have overall and that is something most Investors, Lawyers, Realtors and Lenders don't do very often.
Should any of this be seen as a negative? Absolutely NOT! I have made a living working the local foreclosure market and also teach/mentor others about it. It's the "myths" that can mislead some people into thinking there are all sorts of "deals" out there.

In Reality, there are good deals in foreclsoures. Just take the time to properly research any foreclosure property. They all start by being posted for foreclosure. Don't get mislead into thinking there are all kinds of "free" foreclosure lists out there or take RealtyTrac's statistics as gospel locally.

To obtain actual, pre-foreclosure lists for the Dallas-Fort Worth area, visit: http://flsonline.com

Hope this has helped.
-Jim Watkins
www.dfwmentor.com