Who Pays Foreclosure Fees?
The foreclosure process is a big business, a reality which is not good news for those who face the loss of their home. However, who pays various foreclosure fees and costs depends on who winds up with the home.
Missed Payments
If an owner has missed one or more payments the lender will threaten to foreclose, If the borrower brings the loan current there’s no foreclosure, however there may be an assortment of legal fees because the lender has engaged a local law firm to process the foreclosure. The result is that in addition to the full cost of the mortgage and all penalties, the borrower will also have an additional cost for the work of attorneys selected by the lender.
Short Sale
With short sales the property is sold for less than the value of the mortgage balance. Example, a buyer offers $250,000 for a property with $300,000 still owed to the lender. The lender is asked to take a loss by the purchaser and to release the debt even though the entire amount is not being paid.
With short sales everything is up for negotiation. Since the lender is the “seller” it might be expected to pay some or all of the brokerage fee. In addition to the mortgage there might also be costs for foreclosure attorneys,late fees and various penalties. Who pays what is a matter of negotiation between the the buyer, the owner and the lender.
Money owed to the lender after the transaction may be seen as a debt from the owner. In most states the lender has the right to go after that debt by seeking a deficiency judgment. In the case above the buyer paid $250,000 for a property with a $300,000 loan balance, so the deficiency would be $50,000 plus costs, fees and penalties. However, in some states and in some situations a deficiency claim is not allowed. Also, the elimination of a deficiency claim can sometimes be negotiated as part of a short sale. For specifics in your jurisdiction please speak with an attorney or legal clinic.
Foreclosure Sale
With a foreclosure the property is bought at auction. The terms of the auction are disclosed in advance. By bidding on the property buyers accept the bidding terms, which can include a variety of fees and charges in addition to the basic cost of the property.
Real Estate Owned (REOs)
When a property is sold at auction the lender will typically bid an amount sufficient to repay all of the debt and related foreclosure costs. However, in severe foreclosure markets, the lender may bid less than the mortgage balance which means a buyer can purchase the property for an amount which is below the outstanding debt.
However, if no one meets the lender’s bid it means that the lender gets title to the property. It now owns the home and its “costs” include the price of acquisition, the expense of foreclosure, and the money required to maintain the property, pay taxes, etc. The property becomes “real estate owned” by the lender, or a REO.
Buyers can now approach the lender to purchase the property. The price of the property and the expense of various fees and charges are all negotiable. For specifics, speak local brokers with experience buying REOs for client purchasers.
Buyer Brokers
Foreclosure and REO purchasers who use the services of a buyer broker typically shift the cost to the lender when possible. However, if the broker is owed $12,000 and the lender will only pay $10,000 the buyer can be responsible for the rest.
Many savvy buyers avoid the potential liability from brokerage fees by negotiating the listing agreement to say that the purchaser is not responsible for the payment of any brokerage fee above the amount paid by the lender or the lender’s broker.
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