Foreclosed with unpaid balance

7 Replies

While looking at properties I'll come across a property that says "foreclosed , unpaid balance of $ ". What does this amount mean? How is the unpaid balance taken care of? By who?

@Patrick Jacques -

Unpaid balance is the amount of missed payments (arrears), fees (could be lender and attorney) and interest.

The balance is paid (or partially paid through negotiation) by the owner or anyone who feels it's in their interest to do so (investor). This is before the foreclosure sale.

Hope that helps!

Every reply helps, yes! Im obviously a rookie trying to take in as much as I can.

@TravisDaggett, if that's the case then is it even worth while pursuing a property? Ive found a house Id like to flip, it's listed at $165,000, with an unpaid balance of $191,000. How much negotiation can typically be made in unpaid balances? Thanks!

Not sure if you're looking at a short sale (foreclosure sale has not occurred yet) or a REO (after the foreclosure sale). If it's a REO, the previous balance is irrelevant. In a short sale the balance is irrelevant also, just the FMV.

Originally posted by @Travis Daggett :
@Patrick Jacques -

Unpaid balance is the amount of missed payments (arrears), fees (could be lender and attorney) and interest.

The balance is paid (or partially paid through negotiation) by the owner or anyone who feels it's in their interest to do so (investor). This is before the foreclosure sale.

Hope that helps!

That unfortunately, is not correct.

Unpaid [Principal] Balance is the amount of principal remaining in the loan. While missing a payment will cause the principal to not be reduced, it has nothing to do with missed payments per se.

Interest arrears is the cumulative amount of interest due under the terms of the note that have not been paid. It is not added into the principal balance unless the loan is formally modified.

Generally speaking, folks do not pay the balance down prior to foreclosure. That idea could give way to a reinstatement of the mortgage, depending on the amounts due to cure. It is also sort of silly. The borrower is about to loose all interests in the house, any monies paid to the mortgage are wasted unless the mortgagee is willing to take less than what is due to reinstate or satisfy the mortgage.

When a property is foreclosed, there is no longer an unpaid balance (subject to the redemption period). The mortgage is extinguished and the asset is sent to auction to convert the mortgage (or deed of trust) interests into either cash, by way of real property sale, or equity, by way of reverting back to the lender who takes title.

If the OP is looking at a foreclosured property, the unpaid balance has no real bearing any longer. Unless there is a post sale redemption period. In those states, the unpaid balance plus all interest arrears and advances and fees would sum to the amount due to payoff the debt. That is the "Payoff". By paying the debt, they redeem their interests in the real property, removing the interests of the mortgagee.

Patrick, the second posting makes this sound a little more like this property is possibly a Short Sale. In a short sale the unpaid balance would still be present, since the property has not formally been foreclosed.

In that idea, sometimes we misuse the word foreclosure to mean "in foreclosure process". The balance only serves as a benchmark to quantify (usually in vein) the amount that is due in order to remove the interests of the mortgagee.

If you are buying a property with a mortgage, if the sale price is less than the amount due under the mortgage, then the mortgagee has an option to take less than what is due or not. That is a "Short" and is why the sale is called a "Short Sale".

I see I repeated some of what Wayne said already.

Thank you all for your replies. I checked the realtor.com and the county appraisers site, which were surprisingly unhelpful. So I turned to Zillow ( *sigh ) which lists;

Home in default

Feb 11 2014 Foreclosure auction, $191,000 Unpaid balance

Feb 25 2014 The lender, BofA, has assumed this property during foreclosure proceedings

Mar 5 2014 Listed by bank for $157,000

So to my untrained eye, it looks like an REO. Im wondering where the $191k unpaid balance went

The bank is eating 34K because their realtor has advised them that the market value is less than the amount owed on the mortgage (the unpaid balance)