Any real estate property whose homeowners are having trouble meeting their mortgage obligations due to financial problems are referred to as distressed properties. Depending on the stage of mortgage default, the process by which a property can be considered in distress is usually as follows:
When a homeowner misses a mortgage payment, the bank or lender will notify him of the missed payment via phone call or letter. The homeowner can simply pay the mortgage amount due and continue to pay the monthly mortgage payments as usual.
If the homeowner fails to pay his mortgage for at least 90 days and does not contact the lender to explain the missed payments, the lender will file a Notice of Default with the Trustee. The notice is also sent to the homeowner, formally informing him the start of the reinstatement period, which will last five days before the Trustee Sale.
Three months after the Notice of Default has been filed and the homeowner has still not updated his mortgage payment, a Notice of Trustee Sale will be sent to the homeowner, informing him that the distressed property is scheduled to be auctioned off to the highest bidder. The notice is posted at the Country Courthouse and published in the local newspapers for three weeks.
The distressed property is auctioned off by the Trustee and the highest bidder will take ownership of the property as soon as the bid amount has been settled and the title has been transferred.
If there are no winning bids, the distressed property ends up in the REO inventory of the lender. The lender, who is only concerned about recovering from the losses incurred because of mortgage default, will sell the property at a discounted price.
In general, distressed properties are classified into the following types:
During this time, the homeowner can simply pay off the mortgage due plus whatever penalties or interest incurred to stop the lender from proceeding with the foreclosure. Or, the homeowner can make a Short Sale proposal to the lender.
Home buyers and real estate investors consider distressed properties as worthwhile investments considering they are relatively-cheaper than other existing homes for sale. Aside from the savings, these homes offer impressive return potential since they are ideal as fixer upper homes or rental properties. There is also the guarantee of enjoying instant equity upon purchase.
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