Mention the word "Foreclosure" in any crowd, and everybody's ears perk up. Everybody is interested. Everybody thinks they can get a bargain on real estate with a foreclosure, and everybody loves a bargain. But most people are often scared away by misinformation. People think it's difficult to find and buy foreclosures, or they think there are liens attached to foreclosures, or that they can't even see the property before purchasing. An experienced REALTOR® can answer these question and guide you through the process.

Here's some facts about foreclosures.

In 2006, foreclosures were up 63% over 2005.

In 2007, it's projected that foreclosures will be up 73% over 2006.

New Jersey is # 9 in the nation in foreclosures, with +- 150,000 households in some stage of the foreclosure process.

But, exactly what is causing this rise in foreclosures? We have the usual causes, death in the family, loss of income, sudden illness etc. But there are some other factors that, over the last few years, are major contributors, and they will play an even bigger role in the years to come.

Adjustable Rate Mortgages - In the last few years, ARM's had a lower interest rate than now. This year, 10% of all mortgages in this country will re-price. The re-pricing will raise payments an average of 25%. As the 5 or 7 year mortgages become due, they'll need to be refinanced at the higher rate - and some people won't be able to afford them.  Others will not get an appraisal that will allow a refinance.

80/20 Mortgages - This combines a low interest first mortgage at 80% of purchase price with a 20% second mortgage at a higher rate, often with a floating rate. As the rate goes higher, again, people won't be able to afford them. These also quite often had seller concession for closing costs or repairs, which means the buyer had no equity at all in the property.

Interest Only Mortgages - These have a very low interest rate (as low as 1.5%) for the first few years. The buyer pays interest only, nothing towards principal. These also have negative amortization which means the principal amount of the mortgage goes up!

With a slight drop in house values, many of these mortgages do not have the equity to support an appraisal in the necessary amounts to refinance. This means that if the homeowner doesn't have cash to make up the difference, they may have no choice but to sell.

Unfortunately, many people don't see this coming or they ignore the problem until it's too late. The property then goes into pre-foreclosure, which is when at least 3 payments are missed and the lender files a "lis pendens", the first step in foreclosure.

If the homeowner cannot either re-finance, declare bankruptcy (which doesn't solve the problem, it's just postpones it), sell (in time) or work out an arrangement with the bank, the house is foreclosed upon and the house is sold at public auction. Typically, the house is purchased by the lender, either a bank (Real Estate Owned), Veteran's Administration (VA) or Housing & Urban Development (HUD).

Typically, a house purchased as a foreclosure has a clean title, with no liens. When purchasing, as with any real estate purchase, title insurance assures this. If you are to purchase the property at a sheriff's sale, it's possible that you cannot gain access to the property prior to bidding. After the foreclosure, when you purchase from the lender, access to the property can be arranged through your REALTOR®.

A person whose house is being foreclosed can stop the proceedings at any time by paying the debt. In New Jersey, the foreclosure can be redeemed for up to 10 days after the sale by paying the debt.

REO's - A bank does not want to own houses - it's bad business. By identifying houses owned by banks, you can quite often get a bargain. Ideally, a bank wants to close fast on a property they own. Sometimes, they will accept a lower offer with a quick closing. A cash offer is desired, a mortgage commitment is almost as good, a pre-approval is necessary. The less contingencies, the better the bank likes the offer. Make your best offer first, you may not get a chance to make a second offer because foreclosure properties are usually priced to sell quickly. Again, an experienced REALTOR® can help identify these properties.

VA - A VA foreclosure is a house that the VA owns because they guaranteed the original loan, and the homeowner defaulted. An Armed Forces veteran can buy a house with no money down. You do not need to be a veteran to buy a VA house, just to get VA financing.

HUD - A HUD home is a 1-4 unit residential property acquired by HUD as a result of foreclosure on an FHA-insured mortgage. Almost anyone can buy a HUD home. They are initially offered to owner-occupant purchasers. Following the priority period for owner occupants, unsold properties are available to all buyers, including investors.

Purchasing a foreclosed home can offer a chance for a real bargain. Contact us to help you find a foreclosed property. We have access to the most up-to-date information and availability.