If its your own home in a foreclosure action and you’re trying to save possession and ownership, you can either purchase the mortgage from the lender at face value or at a negotiated discount, or purchase the property by putting in the highest bid when the property is offered up for public sale.
Because you have fallen into a foreclosure process, your credit and financial standing will not likely allow for a bank or institutional mortgage, so a foreclosure mortgage through a private mortgage lender is likely going to be your best option.
If there is equity in the property, then a private mortgage lender can step in an either purchase the existing mortgage or provide a new first mortgage to pay out the existing charges against the property. Existing charges would include but not be limited to any mortgage registrations, property tax arrears, or other property liens. Basically a clean title will be required.
The key to getting an equity based foreclosure loan is completing the refinancing process prior to foreclosure liquidation.
Before the liquidation sale, the property has a fair market value that can be established through a third party appraiser that compares the property to similar properties that have recently sold to establish a value.
It’s this established market value that a private mortgage lender uses to determine if there is sufficient equity in the property to support a foreclosure loan.
But, once the property is sold under a foreclosure action, that sale price, whatever it may be, will be the market value of the property at that point in time.
So if you’re try to purchase the property out of foreclosure, you may be able to purchase it for significantly less than the perceived market value. But if a private lender will only finance 65% of the fair market value, and you’re winning bid is well below the established market value which can happen in the foreclosure process, then there is a good chance that any lender will use the lower value when determining how much financing they can provide against the property.
For instance, if an appraisal is completed at the beginning of the foreclosure process that values the property at $500,000, and a private lender is prepared to finance up to 60% of the property value, then the maximum new mortgage amount would be $300,000.
But if you purchase the property out of foreclosure for $300,000, the maximum mortgage amount at 60% is now only $180,000, requiring $120,000 in cash to complete the purchase.
So in order to make private mortgage financing work for you, you need to make sure that there is equity in the property that can support the foreclosure property financing you require.