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Things to know about home foreclosures

© respres (Flickr) Sign Of The Times – Foreclosure
© respres (Flickr)
What is foreclosure
What is a foreclosure?
A foreclosure happens when the owner of a property defaults on a loan and the lender takes action against the owner to recover their collateral and or money owed.

Procedure
A notice of default is mailed or posted on the property 60 days after the owner has missed his payment. A foreclosed home is one where the bank has taken action through legal procedures and taken possession of the property. This can happen through an open auction on the doorsteps of the courthouse.
Facts about foreclosure auctions
Redemption via payment
If the foreclosed home is going to be sold in a foreclosure auction, the owner has a right to redeem the property if they can pay the entire past due mount owed. The total amount to be paid to the bank must include foreclosure fees which can be expensive.

Should the owner not try to redeem the property, the housing auction goes forward and the new owner will attempt to evict the previous owner and renovate any potential damage done to the property.

Remember
Anyone who buys a property on the court steps must be prepared to also pay off any liens attached to the property. It is advisable to be represented by an attorney or agent before attempting such a purchase.
HUD homes, Reo homes and bank owned homes
Means of purchase
HUD properties, REO homes and bank owned homes are ways of purchasing foreclosed homes. HUD lists their homes on their website and anyone can view the listing, but only a licensed agent can make the bid. The homes are sold in as is condition and HUD offers to finance all repairs.

REO homes and bank owned homes are sold in as is condition and repairs are the responsibility of the new owner. Title I FHA loans are available to the buyer at a higher interest rate if desired. Many times, the bank will make the repairs and raise the price of the house to accommodate a profit.
Tax consequences of home foreclosures
Cancellation of debt may be taxable on foreclosed homes. The amount taxable is the difference between what is owed and the amount received through the sale. So if the bank is owed $200,000 and the home is sold for $145,000, the cancellation of debt is $55,000. This amount is added to your tax base and then deductions are subtracted to come up with a final taxable amount.

Sources:

Realtytrac.com
Irs.gov
Debtworkout.com

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