Not always. That is why you need title insurance.

There are senior liens (taxes, HOA fees, etc.) that must be paid when a house is sold and then there are junior liens (home repairs, lawsuits, etc.) that are also normally cleared.

If the total liens plus all mortgages exceed the market price of the house, it normally cannot be sold since even the junior lien holders can cause a foreclosure on the house forcing it into a foreclosure action. If the junior lien holders do not have any equity in the house (wouldn't get paid if the house was sold), they probably wouldn't foreclose (costly and no financial benefit) and the owner would have to make an agreement with the junior lien holders (partial payment or forgiveness) before he can sell the home. When a person is caught in such a situation, the homeowner may quit paying the mortgage causing the home to be foreclosed which causes a foreclosure auction paying off the senior liens and clearing the junior liens.

The primary purpose of the foreclosure auction is to pay senior liens and clear second mortgages and/or junior liens. Since it is open to all, second mortgage holders and/or junior lien holders usually only bid if they have equity in the property. Whomever wins the bid (usually the primary mortgage holder) pays off more junior holders only of there is money remaining after paying the more senior holders (senior liens and partial payment to the primary mortgage(itself)). After payments are made (no payment in most cases to the junior holders), the title is cleared.

OK that is a little clearer about the difference between a foreclosure auction and a bank selling a foreclosed home. Thanks.

Without a foreclosure auction, there wouldn't be anyway to determine the value of the house so that mortgages and lien holders could be paid an/or cleared legally.

It doesn't mean that lien holders cannot go after the original owner for payment but it does clear the lien from the property.

So if there was not enough value in the house to pay off the lien holders the debt remains but on the person rather than the property?

Yes. Second mortgages may be forgiven but that depends on state laws.

Yep, it was a short sale. Went VERY quickly, even though there were two lenders involved, and they took an absolute bath - especially the 2nd mortgage holder - maybe 10% on the dollar? I was apparently lucky but don't let the 'buzz' stop you from at least trying one or two. I bought a place that previous owner had paid $300k for 3 years ago, 100% financing. I paid ~$150k. I also used a line of credit to buy, which means, I paid 'cash' as far as the sellers were concerned, and that's a big plus - they don't want to deal with buyers who themselves may take time getting a loan.

I'm now looking at a bigger place and some are foreclosures. There are a LOT of them, and some are actually in great shape, so again - don't let the stories of 'removed all the fixtures' put you off looking.

The one thing I would say, from my experience (YMMV), foreclosures tend to be more realistically priced. I'm looking at condos/townhouses ... so you have a lot of comparables right there in the same development. I've been looking at several places where 'owners' are asking $350k. Then I saw two foreclosures, both $280k. I saw them all and they are all the same.

The key is to keep looking over time, and get a 'feel' for how quickly things are moving, where prices are going, etc. I was renting a place in the development for 3 months, and looked up every property for sale, and watched to see how fast they sold, whether they dropped their prices, etc. You can't just swoop in on a weekend and expect to make an intelligent choice.

Edit - WOW - just got an email from the realtor that showed me the foreclosure mentioned above as being $280k; it has just been reduced to $259k !

check out loansafe.org - its all about the foreclosure and short sale process.

Its from the other side (ie people in foreclosure) but will give you an idea as to how this all works. We looked at going this route for a purchase but the area we wanted didn't have many available.

We are buying a house (closing next week) and our lawyer sent us a search of both us and the sellers for other liens (traffic stuff, hospitals, etc). Both the seller and I have somewhat common names - it was over 500 pages..

Goat

Above, I said that foreclosures tend to be more realistically priced. To elaborate, one key element is that the seller (bank) has no emotional tie to the property. A lot of people put a lot of blood, sweat and tears into a home and 'want to get their money back'. A bank looks at the time value of money - 'what are we losing by not having the $ in our hands'. Every month they have a property on their hands, that's $100k, $200k that is not being put to work earning interest in some other venture. A private homeowner will often happily 'sit' in their house hoping to get a higher price, and if they don't get it - they stay.

Hiya, I recently bought a condo in southern California - it was a short sale so not quite a foreclosure - it was pretty close to there.

I think if you have the time and patience to just keep bidding - and wait and know that you might try for a few and not get it it - it's completely worth it. I bid on several places over a period of time.

At any rate - really for me I just found a Realtor (As well as a loan guy to do the pre-approvals etc) I felt like I could trust - that seemed to care and would find out or knew anything I wanted to know as my buyers agent. For me the relationship there was important and I still feel like she went above and beyond to help - even after the fact (I managed to lose some paperwork I needed for taxes - I emailed her and *poof* - magic it was all good).

Anyhow - that's my 2 cents .

(Oh I don't know the rules on posting but if you want her info - I endorse her 200%)

they will also wait for the market to catch up to what they are asking - they have the big pockets and can afford to say 'no' and hang on.. i've known banks to say 'no' when the buyer and bank are off between a mere $1k. Besides, they have an attitude of "we have what you want". Yes, they're driven by money... part of the equation is how much they may receive from uncle sam as bailout reimbursement from what they 'lost' from the original loan amount... also, the schmo who sits behind the desk at the bank, s/he gets bonuses depending on how much they save the bank on the sales.

They're not there to lose money - banks have done their homework too by having the places appraised and evaluated prior to them placing their properties on the market... if they think they can get 300k b/c it appraised for it, they'll list it at such. Typically every 60 or 90 days they'll reassess their list price but often they'll just wait to get what they're asking. At the moment, they are staggering their foreclosures.

In addition, it all depends what they are wanting to write down and put as losses on their books. With banks, its a whole different mentality and ballgame... whatever is in their best interest!

this gives an idea what is at stake for some banks etc and what goes on.... (just look through the 'scam' theme and the singled out bank)...

http://www.youtube.com/watch?v=ssl5y...eature=related

Some very good points... they also think about the bigger piciture and control the number of foreclosed properties they are releasing to the market. They know full well that if they accept lower than appraised prices it will depress the values of other houses and make another round of underwater borrowers throw in the towel.

Both of you are making good points, and I know you both know what you are talking about. So it goes both ways. My current experience is, there are several 'private home sales' in a complex that I'm looking at and the sellers are asking $350k and above, while there are two foreclosures where the banks are asking $280k, and now one of those just got dropped to $259k. Now, this is Scottsdale, one of the worst hit markets in the country ... I think the banks here are more pragmatic than the homeowners, who are in something of a state of shock and denial!

wow
thanks for all your imput guys
i lost my own thread (duh)
finally had the chance to read through all the replies and look at things

My eldest daughter just bought one by me..The foreclosed houses usually need a lot of work to pass inspection..I had to pay 25k to get it in good enough condition for a bank to give her a loan on it...It's a huge house that was at one time worth 500k, but it's selling for 200k now..After paying for the work on a house I did'nt own, it still didn't pass inspection because of some electrical problems. My daughter was crying over it so I paid the inspector $1000 to pass it and he did- I should have just done that in the first place and let my daughters husband fix it up at his leisure after they moved in..Thats all I know

When they go fast, watch out for paying deposits without checking out if the seller listed on the contract is in fact appearing on either the property appraiser's website and/or the county's online records as actually being the owner. There are some out there who'll say the title has just changed and isn't yet showing up online. Write to the title agent and bring it to their attention. With some of these really quick closings on what appear to be ridiculously low prices, people drop their guards.