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Understanding Local and State Foreclosure Laws When Purchasing a Home

01/18/2021 By Gulf Coastal Properties

“Friendly Neighbors” a Home Buyer’s Must Have

Purchasing a foreclosed home can give a buyer the opportunity to afford a home that better fits their lifestyle needs, get into a home for the first time, or move into a highly sought after neighborhood sooner than they would be able to because homes there are priced just out of an affordable range.

Foreclosed homes can save a buyer up to 30 percent from the fair market value of a home, but there are some risks involved with buying a foreclosed home. The best plan for buying a foreclosed home is to be well-educated in the process and be aware of the potential surprises involved.

One of the first things to know when it comes to foreclosures is a general understanding of the foreclosure laws in the state you wish to purchase a foreclosed property. Foreclosure laws are decided at the state level and can vary from state to state. A good place to start is knowing if the state is a mortgage state or a deed of trust state.

What is a Mortgage State?

Some states have labeled themselves as mortgage states, this means that the state uses mortgages to secure home loans. In most cases mortgage states require a judicial foreclosure process. This simple means the foreclosure process on a loan must be done through a judicial sale.

A Deed of Trust State

A deed of trust state uses deeds of trust to secure mortgage home loans. The judicial foreclosure process is still available in these states, but the nonjudicial foreclosure process is also available and often the course taken by lenders as it is a much quicker process.

Judicial Foreclosures

With a judicial foreclosure the lending bank is required to file a lawsuit to start the foreclosure process. A judicial foreclosure can take several months and gives the mortgage borrower time to find a new place to live and/or defend themselves in court. When a borrower is in default (has not made payments in 120 days) the bank sends a notice to the borrower and if payments are not made or a plan for payment agreed upon the bank may then file lawsuit for permission to foreclose. The bank then must send notice to the borrower a lawsuit has been filed. If court rules in favor of the bank the home is then sent to auction. In some cases the bank will submit a bid so that the home is not sold for less than they deem acceptable. If the home is not sold to a higher bidder or not sold at auction the bank takes possession of the home and it becomes an REO (Real Estate Owned) property.

Non-Judicial Foreclosures

In non-judicial states, the specifics about foreclosure proceedings depend upon the particular laws set by the state. These can include how much and what type of notice to the borrower is required, what rights a borrower has to reinstate a loan, etc. The process can be much more involved to figure out, but much swifter as the bank does not need to seek permission to foreclose, they simply need to follow the proper procedures.

It is good to know the foreclosure laws in your state before considering a purchase on a foreclosed home to better be prepared for what could happen and how long the sale of the home could take.

If you have questions about selling your home during or after forbearance it is a good idea to talk to a real estate professional.

For more information on selling or buying a home in Mexico Beach please contact us right away. We are here to find a Forgotten Coast home you love. For more information on moving to the Forgotten Coast or homes for sale in Cape San Blas and surrounding areas please contact us any time.

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More Tips for Buyers:

  • Can you buy a home after a forbearance?
  • 7 Risks to purchasing a foreclosed home
  • 10 Tips for Moving Across the Country
  • Buying Ocean Front Property to Rent It
  • “Friendly Neighbors” a Home Buyer’s Must Have

Filed Under: Home Buying Tagged With: foreclosure, home buying

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