Real estate foreclosures are a hallmark of the credit crunch of 2008. Arkansas real estate has not escaped this devastating blow to the economy. In December 2008 alone, 599 new foreclosures were registered in Benton County, 328 in Pulaski County and 225 in Washington County. Those numbers are just a sampling of the 1,814 foreclosure filed that month. For the entire year of 2008, the number soars to over 16,600.
What is a Real Estate Foreclosure?
Foreclosure is a process that allows a lender to recover the amount owed on a loan not paid according to the finance terms. The lender has the right to sell or take ownership (repossession) of the property securing the loan. The foreclosure process begins when the borrower defaults on loan payments (usually mortgage payments) and the lender files a public default notice.
The foreclosure process usually ends in one of four ways:
- The borrower pays the defaulted amount and the loan is reinstated during the pre-foreclosure period.
- The borrower/owner sells the house in order to payoff the loan and avoid the foreclosure process during the pre-foreclosure period.
- The property is sold at public auction at the end of the pre-foreclosure period.
- The lender takes ownership of the property with the intent to resell it.
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How Does the Foreclosure Process Work?
In Arkansas, lenders may begin the foreclosure process with or without a court order. The property must be appraised and cannot sell for less than two-thirds of the appraised value. If the property does not sell, it can be offered a second time within 12 months and can be sold with no reference to appraised value.
The Arkansas foreclosure timeline is usually 120 days. Under the judicial foreclosure (court order) the borrower has one year after the property has sold to redeem the property by paying the sale amount plus interest to the purchaser.
What Else Do I Need to Know?
The pre-foreclosure period can be a good time to approach the borrower who is in default. Many times, they will be willing to sell the property for a huge discount in order to pay the loan and protect their credit from foreclosure.
At the end of the pre-foreclosure period, the property will be auctioned. This also offers a good buying opportunity, but usually requires cash payment at the time of the auction and may not offer an opportunity to inspect the property.
If the property does not sell and the lender takes possession, this is called the REO period. The lender wants to recover all funds owed to it so the potential for bargain-buying is less than at the two other times mentioned. The lender will, however, make certain the title is clear.
Do People Really Make Money Buying, Renovating & Reselling?
Some certainly make money buying homes, adding a few fixes and reselling. We've had the good fortune to meet some folks in Pulaski County who do this very thing. Some do it part-time as a way to supplement their income while others work at it fulltime.
If you are thinking about this as a way to earn money, you should know that tax laws require you to live in the house for two years in order to shield up to $250,000 ($500,000 for a married couple) from taxes. That may or may not matter to you.
The one thing you must do is arm yourself with information. Of those 500-plus Pulaski County properties mentioned above, 14 are listed as for sale by owner, 29 are in the pre-foreclosure period, 219 are in the auction phase while another 226 are now considered to be bank-owned properties.
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