The process when a financial institution (the mortgagee) takes a property they have mortgaged back from (the mortgagor). A homeowner who has been notified of a pending foreclosure (Les Pendens) from the financial institution holding the mortgage, should contact a real estate attorney and me a Realtor, to help determine the consequences and any alternatives.  

The owner of a home that goes into foreclosure may be evicted from the home before the foreclosure is completed and the financial institution takes the home back. After the foreclosure the homeowner may have a deficiency judgment filed against them for the  monies the financial institution lost on the the transaction.  This deficiency judgement can be enforced for up to twenty years after the foreclosure. 

Types of Loans:

Recourse loans are those type loans the lender can still seek a deficiency judgment after the  short sale or foreclosure has taken place. In other words, the lender may seize other assets belonging to the defaulting homeowner to cover the lender's loss.

Non-Recourse Loans, the lender's only option is to foreclose on the property and may not seek a deficiency judgement against the former borrower.

In addition, the home owner may receive a 1099 for Phantom Income from the mortgage holder which could trigger additional tax consequences. For a short period ending at the end of December 2012 due to the Mortgage Forgiveness Debt Relief Act of 2007, this Phantom Income will not be subject to tax on primary residences.

Alternative to Foreclosure:

Further, a foreclosure will seriously impact a home owners credit score and could possibly prevent them from purchasing another home for many years. A better solution rather than a foreclosure is to obtain the services of a licensed Realtor such as myself and do a short sale, it allegedly has less of an impact on the home owners credit and may allow them to purchase another home in the future after a shorter period of time.      

Recently Banks and Credit Unions have found themselves with more and more "foreclosed properties" in their Real Estate Owned (REO) departments. This is a financial burden to the Banks. Having to maintain these homes, the cost to do the foreclosure (approximately $60,000) and the fact they have a bad non-performing loan on their books can put a serious strain on the Bank. Banks do not want to be in the real estate business and are usually willing to dispose of these properties by putting them back on the market, at prices substantially below present market prices, just to get them sold fast.  

Buying Foreclosures:

This provides a unique opportunity for a buyer to buy property at a bargain price. RE0's, Forclosed or Corporate Owned properties are the best bargain for buyers because they can be closed faster than short sales and  the banks are more willing to negotiate these to sell them quickly and get them off their books.  

Many REO's or Corporate owned are sold "as is condition" however, a good number are in very good shape and are great bargains. To obtain the good properties, be prepared to move quickly, have your pre-approval letter on your loan or verification of a deposit if you want to offer cash, as there may be many multiple offers and expect a "Highest and Best Price" request.   

Other Type Foreclosures:

Deed in Lieu of Foreclosure is when the seller and financial institution holding the mortgage agree to take the property back without going through a Short Sale. This process saves time however it is still a Foreclosure. 

Strategic default is the decision by a borrower to stop making loan payments on a debit despite having the financial ability to make the payments. Sometimes referred to as "jingle Mail", one mails the keys to the bank, such borrowers are called "walk aways" and the effects will vary by jurisdiction which may be different in states in the United States.  It will vary notably whether it is recourse debt or non-recourse debt meaning, whether the mortgage lender can pursue claims against the defaulted debtor.  The lender will eventually foreclose and with foreclosures the borrower even with good credit, may be denied a mortgage from the U.S. Government for up to 3 years on a FHA loan and 7 years on a FNMA loan.  For a short period ending at the end of December 2012 due to the "Mortgage Forgiveness Debit Relief Act of 2007", phantom income will not be subject to tax on primary residences.  All other property such as second homes or income property may be considered "income" subject to federal income tax and the borrower will probably receive a "1099" from the IRS.        

Impact of Foreclosures on Credit Scores:

Foreclosures, Deed in Lieu of Foreclosure, Strategic Default and Short Sales all have an impact on credit scores. Allegedly Foreclosure and Deed in Lieu of Foreclosure and strategic default have more of an impact then a Short Sale. The waiting period before you can qualify for any type conventional financing is a little shorter for a Short Sale.  With a Short Sale you can try to qualify after 2 years, Foreclosures and Deed in Lieu you would have to wait 3 years before you can apply to qualify. If you foreclose on a property, FNMA may prevent you from applying for and getting a loan on one of their properties for up to seven years. 

Being an experienced Realtor, I have negotiated numerous REO and short sale transactions and will do all I can to help you purchase or sell one of these properties. In addition, after taking extensive additional education and training on successfully negotiating short sales, foreclosures and REO's,  I recently obtained the Loss Mitigation Certificate (LMC).  Further, I have access to all pre-foreclosure and forclosed property in the Jacksonville market and can make them available to a prospect interested in purchasinig one or a number of these properties. Telephone me at 904-608-5681 or e-mail: and let me know how I can help you.    


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