Buying Before Foreclosure

There are many homeowners who owe more on their homes these days than that home is worth. These homeowners are often making high mortgage payments. Some may face circumstances where they need to move, but in this declining real estate market selling a home these days can be impossible. So what is a person to do? Some buyers who are faced with having to move are taking drastic steps to ensure their family will have a home. These steps involve some moral issues as well as some credit issues but these people are willing to take the risks. So what is this scenario you might ask? It’s simple and many people today are considering it. It’s buying another home and then letting the existing home go into foreclosure. Yes it’s possible and actually quite easy, with minimal if any risk. There are however, a few criteria buyers must understand and meet before attempting this plan.

1. The buyer must be current on their existing mortgage. This means no Lates what so ever or you probably won’t qualify.
2. You will have to qualify for two mortgages, the existing and the new one.
3. The buyer must have good credit and be prepared for his credit to be ruined for a while afterwards.
4. The buyer should have a down payment or buy a home through a down payment assistance program. (HART)

There are factors surrounding the foreclosure as well. In California the foreclosure laws prohibit banks and financial institutions from seeking the difference between what the owner owes and what the home actually sells for. This is called a non deficiency and is a requirement of a trustee sale as apposed to a judicial foreclosure. A trustee sale is most common in California and your mortgage contract will determine whether a trustee sale is the method of foreclosure your lender will be using. In order for a homeowner to qualify for this situation there a few criteria that must be met.

1. The buyer should still have his initial purchase money loan. This means the original loan he used to buy the home.
2. The buyer can have a first and a second as many owners do but, it’s better if the buyer does not have a HELOC as his second.
3. The buyer should be in his current home for more than 2 years. This will eliminate any IRS ramifications of capitol gains although there are other ways around this and a tax representative should be consulted.

There are more and more buyers who are faced with the dilemma of selling a home in a declining market. Some of these buyers have no choice due to circumstances and this method offers these buyers a change to own a home rather than rent for years as their credit is slowly repaired. This situation of buying another home before foreclosure often helps the buyer rebuild his credit much more quickly after the foreclosure as he has another mortgage to help boost his score.

This method may not work for many buyers as they will have to qualify for a new mortgage taking into account the existing mortgage. Other factors will need to be considered as well but all in all this may be the light at the end of the tunnel for some homeowners.

If this scenario is one you are considering please consult with a tax professional before taking any steps and get as much information regarding your personal situation before taking this drastic step.