Foreclosure and house repossession both refer to a creditor legally taking away the home from the owner. However, there are differences. Foreclosure is the process followed by a lender when the owner defaults on home loan payments. It can take different lengths of time in various areas. It is only after foreclosure that a house can be repossessed.
In foreclosure, the sale of the house is taken as collateral when the owner defaults on payments. Housing repossession is when the lender takes possession of the house when the owner has not met his payments. Also, foreclosure happens when the owner fails to pay the property tax and the government takes over the property. There are some foreclosure properties for sale in Aylesbury, on which a professional real estate agent can provide all details.
So far, the level of foreclosure properties has remained low. This is due mainly to the post-pandemic helpline schemes of the government to ensure that the borrower gets maximum benefits to enable him/her to meet his committed payments on time. In November 2020, the payment deferrals were allowed for 6 months if applied for in time. This “holiday”, however, ended on 31 July 2021.
Now that a return to normalcy is looked forward to, what is the prediction for foreclosures?
Mortgage lenders fall under the rules of the FCA (Financial Conduct Authority) and need to follow the rules in the MCOB (Mortgage Conduct of Business), to ensure that they have done all that is required before they seek foreclosure or possession of a property.
On the other hand, the borrowers need to inform the lenders in advance if they are facing problems in meeting payment commitments. A mutually amicable solution can then be worked out. If the borrower cannot reach a repayment agreement and is forced to sell, the lender should allow time for that as well.
Now that the lockdowns have been lifted and with the vaccination program running successfully, a return to routine life is looked forward to. However, despite the government assistance to borrowers, they are still going to face difficulties in meeting payment deadlines. With the furlough scheme set to close at the end of September 2021, regular incomes will be hit. Unemployment may spiral despite the opening of offices, shops, restaurants, pubs and entertainment venues.
This may lead to an increase in foreclosures.
The advantage of purchasing a foreclosure property is that it will probably be less expensive. However, a prospective buyer needs to be aware of the buying process and other considerations.
There are usually 3 stages of purchasing foreclosed properties – pre-foreclosure, auction and post-foreclosure. Each stage has its pros and cons.
Pre-foreclosure:
Advantages:
Price negotiation: The seller may need to make a fast sale and this allows negotiation for a lower price.
Condition and title information: The seller will probably have repairs done to make the property attractive to the buyer. He/she will also have to give all details of the property’s condition.
Disadvantages:
Price: If the seller is desperate enough to short sell (sell for a price lower than what is owed on the mortgage), the seller’s lender must agree and will bargain for a higher value.
Condition: The property may need repairs and maintenance. A short sale property is usually sold in its present condition.
Uncertainty and time: Sellers may withdraw due to improvement in their finances. The whole process could take time for negotiations with lenders. The seller may need time to relocate.
Auction: When the owner is unable to find a solution, the lender is permitted to auction the property.
Advantages:
Price: The price could be below the market value.
Time: is saved by not having to negotiate with the lender.
Less competition: Most auctions require cash sales, and this leads to less competition.
Disadvantages:
Finance: Only cash offers are accepted and there may be auction fees.
Title and condition: No information on the property history or condition will be provided. Any pending taxes will be the responsibility of the buyer, so researching the title is necessary.
Time: The owner may need time to move out.
Post-foreclosure: If an auction sale does not go through, the property becomes a REO (real estate owned) property and the lender can sell it in the property market or at an REO auction.
Advantages:
Finance: The buyer can use regular mortgaging with a normal closing time frame.
Concessions: The Bank may pay the agent’s commission and allow concessions on the price, down payment etc.
Condition and title: Full information will be provided, and since the property will be vacant, inspections will be allowed.
Disadvantages:
Condition: The property is sold in its present condition.
Despite the lower prices offered on foreclosed properties, there are additional transaction expenses that need to be taken into account. Payment of transfer taxes, as well as any real estate property tax liens, will need to be paid. Sometimes, an additional fee to the foreclosure company will be required.
Conclusion: It is difficult to predict whether foreclosures will increase. They may, due to the economic situation of homeowners which also may be helped by additional government schemes. However, if a potential buyer is interested in a foreclosed property, sufficient research needs to be done, and the expertise of a professional estate agent would be necessary.
