Delinquent loans may turn into tax deed sales, foreclosures, bankruptcies or short sales. What’s the difference between these four?
The economy is in a slowed down cycle which has turned many financial balance sheets bright red. Foreclosures, short sales, bankruptcies, and tax deed sales are more common than ever before. What are the steps that are leading homeowners down these paths? Here are some possible scenarios:
- A foreclosure occurs when a mortgage holder stops making his or her monthly payments and the loan ends up in default. Many citizens have gotten into trouble because they’ve lost their jobs and are unable to sell their homes. They can’t sell them because they bought at the top of the bubble and their abodes are now worth a lot less than what is owed on them. Many loans were given in amounts of 100 percent or even 125 percent of appraised value. No down payment was required and many lenders were not even checking to see if income to debt ratios were adequate. This has left a slew of upside down loans and mortgage holders with nothing else to do but give the property back to the bank. The house is foreclosed on meaning that the debt has been called in. - A short sale is one step before a foreclosure. The bank hasn’t called in the debt yet, but the loan is upside down and the owner is attempting to get out of his obligation by negotiating a sale at a reduced amount. These are often cumbersome and anxiety filled purchases for all concerned, but sometimes they are successful for all three parties, the owner, bank and purchaser. The realtor who handles the deal achieves success, as well, by way of a commission. - A bankruptcy is a legal action where a person eliminates his or her debts. This most commonly occurs after a divorce, job loss or medical care catastrophe. While wiping one’s financial slate clear may appear to be a painless way to start over, citizens usually report emotional and economic hangovers as a result. - Tax deed sales are a bit different in that it’s not the bank that is the holder of the bad debt, but instead the government. Every owner of property must pay taxes on it. The amount due is a percentage of the assessed value and is payable annually. Many mortgages are PITI which means payments including taxes and insurance, but sometimes this isn’t the case. If a homeowner fails to pay his rightful share, after a period of time, the government will step in and seize the house, land, mobile home or condominium. The property is then put up on the auction block and sold to the highest bidder. Public schools, libraries, police and fire personnel, road maintenance and construction are all funded by property taxes and it is crucial that there are no deadbeats in order to continue with these services and amenities.
