In the ever-evolving world of real estate, foreclosures remain a prevalent reality that impacts both homeowners and investors. Grasping the foreclosure process in the United States and Mexico, is crucial for potential investors seeking profitable investment opportunities in the real estate market.
Demystifying Foreclosure Processes: US vs. Mexico
The legal framework governing foreclosures differs significantly between the US and Mexico. In the US, the foreclosure process is primarily governed by state laws, while in all of Mexico, it falls under federal jurisdiction. This divergence in legislative oversight leads to distinct timelines and procedures for each step involved in the foreclosure process.
Judicial vs Non-Judicial Foreclosures
In the U.S. Foreclosures fall into two categories, Judicial Foreclosures and Non-Judicial Foreclosures. In a judicial foreclosure, each step of the legal process, or every time legal paperwork is filed, the lender or foreclosing party must receive court approval signed by a judge, to continue to the next step of the foreclosure process. In a non-judicial foreclosure, the bank or foreclosing party only needs to file the required documents with the courts, and may proceed with having to wait for the courts approval.
The process of a judicial foreclosure generally takes around three years, but in certain states, such as Hawaii and Louisiana, the average foreclosure takes anywhere from 4 – 7 years (usually involving a legal defense on behalf of the defaulted borrower in the most extreme cases), while in a non-judicial foreclosure, the property can go from default to eviction in as little as 5-6 months.
Each state in the U.S. has its own laws regarding foreclosure jurisdiction, timeframes, and requirements for the process.
In Mexico, all foreclosure proceedings are considered judicial, as there are various steps in the legal foreclosure process which absolutely must be approved by the courts, making the proceedings uniform across the entire country, however may take longer than certain non-judicial states in the U.S.
US Foreclosure Process: A Step-by-Step Breakdown
- Default Notice: In the US, the foreclosure process typically commences with a default notice sent to the borrower by the lender. This notice outlines the missed payments and provides a grace period to rectify the situation. If the borrower fails to make the necessary payments within the specified timeframe, the lender may proceed with foreclosure proceedings.
- Notice of Foreclosure Auction: After filing the appropriate documents with the courts, the lender sends the borrower a notice of sale, with the date and location of the foreclosure auction, as well as the minimum bid.
- Foreclosure Auction (Trustee’s Sale): The property is put up for public auction, and the property is sold to the highest bidder, allowing the lender to recoup the outstanding debt. Once the bidder completes the purchase, they are provided with a trustee’s deed, and are entitled to immediate possession of the property. It is up to the new owner to decide how long the defaulted borrower may occupy the property. Once all debts have been satisfied, any remaining funds are returned to the borrower.
- REO Property (Real Estate Owned): If there are no qualifying buyers at the time of foreclosure auction, the property is awarded to the lender.
- Eviction: Once the new owner is declared, a notice to evict is sent to the occupants of the property, and they are generally afforded a short amount of time to collect their belongings and evacuate the premises. After the time specified in the eviction notice has passed, the property is inspected by the new owner with the assistance of local authorities. Any occupants are removed and any remaining property is impounded.
Mexican Foreclosure Process: Navigating the Judicial Labyrinth
The Mexican foreclosure process, known as “juicio hipotecario,” is generally considered more involved than its US counterpart, however in recent years US foreclosure proceedings have elongated significantly, meaning on average, Mexican foreclosures take less time than in the US. The foreclosure process in mexico involves a complicated series of legal steps, but can be summed up as the following:
- Sin Demanda (Without Demand): The first step involves an attempt to resolve the matter through mediation between the lender and borrower.
- Juris Vol (Court Filings): If no agreement can be reached, the lender files an initial complaint with the courts, and the court issues the borrower a notice of default, with the amount to be paid in order to avoid foreclosure. If the defaulted loan belongs to the original creditor (usually a bank), they may complete this step by filing with the public notary, instead of the courts (Vía Notario, or “Through Notary”).
- Emplazamiento (Subpoena/Court Summons): Once the allotted time in the default notice has passed and the loan has not been brought current, the borrower is issued a court summons to appear before a judge, and present their response to the lawsuit. If the borrower does not reside at the property being foreclosed on, local authorities (or even telephone companies/cell providers) are asked for information on where the borrower may be served. If the borrower is unable to be located, the presiding judge declares them in contempt of court, and the process continues.
- Pruebas (Evidence): The lender presents all of the evidence they have collected against the borrower to the courts, and if the court is convinced, a judgment, or demand will be issued in favor of the lender.
- Sentencia Firme (Judicial Demand): After allowing the borrower a chance to appeal, the court issues a final judicial order authorizing the seizure of the property.
- Remate (Public Auction): The property is then auctioned off to the highest bidder. If there are no qualifying bidders, the property is awarded to the lender, or the owner of the mortgage note.
- Adjudicación (Adjudication): Once payment has been completed, a decree is filed with the public notary, declaring the highest bidder the new owner of the property (it should be noted that the new owner still does not have the property title, but is now considered the owner of the property in the eyes of the law). In the case that there is no qualifying bidder, the decree declares the lender as the new owner.
- Escrituración (Property Transfer): The deed, or property title is prepared in the name of the new owner, and a court summons is sent to the old borrower to appear and sign the property over, however this rarely occurs. If the borrower does not show, the judge declares them in contempt, and signs the property title over to the new owner in their stead.
- Toma de Posesión (Eviction): After the property title is signed over to the new owner, they may proceed with eviction immediately.
Addressing Common Foreclosure Concerns
Foreclosures often raise a multitude of questions and apprehensions among homeowners and potential investors. Addressing these common inquiries helps individuals make informed decisions regarding their financial situations and real estate investments.
Frequently Asked Questions
Alternatives to Foreclosure
Cash For Keys
When foreclosing on a property, lenders will typically make a “cash for keys” agreement offer to the borrower just before filing with the courts. Cash for keys is an agreement where the borrower is offered a lump sum of cash from the lender in exchange for voluntarily vacating the property at a predetermined time, which can save the lender sometimes years and thousands in legal costs, as the property is signed over voluntary during the pre-foreclosure stage.
Zombie Foreclosure
If a lender no longer sees foreclosing on the property as fortuitous, the lender may decide to not follow through with a foreclosure at all. Typically this will happen when a tenant receives a default notice, then destroys and vacates the property. The lender will then have an appraisal done, and if the costs involved outweigh the potential returns, the lender will not file the foreclosure documents.
In this case, if foreclosure documents are not filed, the property title will remain under the borrower’s name, and the property will continue to deteriorate, at which point the property is now considered a zombie property or zombie foreclosure. For this reason it’s recommended to anyone facing foreclosure to not vacate immediately, but rather wait until the eviction notice arrives as there’s always a chance the lender may not follow through with foreclosure proceedings, and after vacating the borrower may still accumulate fines under their name.
Foreclosure Business Opportunities
While occurrences of foreclosures can be tragic in most cases, they are an unfortunate reality, and often present lucrative opportunities for those who know where to look. A property in foreclosure can generate hefty returns through a variety of investment strategies.
Flipping Houses
One such method of generating profit from a foreclosure is buying property at foreclosure auction, paying for renovation, and selling the property on the housing market at what is commonly referred to as hyper value, or the property’s potential market value once completely renovated.
This practice is quite common and is referred to as house flipping. The property does not necessarily need to be bought at foreclosure auction to be flipped, but doing so generates higher yields, as the property can be acquired at a steep discount.
It should be noted that oftentimes the yields earned from flipping houses are close to zero or even negative in some cases, due to the highly unpredictability that is involved with buying and renovating a property. For this reason flipping houses is becoming less and less popular with investors.
Mortgage Note Investing
Another less commonly known method of foreclosure investing involves purchasing the mortgage itself, from a lending institution. Buying a mortgage note provides an investor with the rights to manage the mortgage loan, including charging the borrower monthly payments, adjusting monthly payment amounts, and initiating the foreclosure process should said borrower default on the loan. A mortgage note can provide steady long term truly passive income, as a borrower is legally required to complete their mortgage payments, or their property is forfeit. Banks will typically sell defaulted mortgages at a fraction of the value of the loan, meaning investors can see between 50% – 100% ROI over the course of the mortgage (in most cases 30 years), simply by purchasing the mortgage note.
Flipping Cap
In recent years, the investment managers at Urban Capital have brought a new strategy to real estate investors, which they have dubbed “flipping cap.”
Derived from the term ‘flipping house,’ flipping cap refers to flipping the capital that is represented by a defaulted mortgage.
Flipping cap is the process of purchasing a delinquent mortgage at the start of the foreclosure process (in the pre-foreclosure stage), holding on the mortgage note until the legal process is almost complete and the property is about to be put up for auction, and the selling the mortgage, when it is at its most valuable.
This tactic can generate higher returns than nearly any other investment (100% – 200% ROI is a common occurrence when flipping cap) in a shorter time frame than most real estate investments.
Flipping cap is especially profitable when investing with Urban Capital, as we purchase loans in bulk packages from banks, therefore offer even larger discounts on the initial investment.
More Information
For further reading on how to profitably invest in mortgages check out our other resources on the topic
- Real Estate Note Investing: How to achieve 200% ROI
- Stop Flipping Houses, Start Flipping Cap Instead
- Is Buying Property in Mexico a Good Investment?
Investing in Mexico
Experienced and beginner investors alike are choosing more often than ever, to implement these strategies into their portfolio using investment properties in Mexico, for a number of reasons, including the following:
- Low barrier to entry: Real estate, especially foreclosed properties can be acquired at much lower prices compared to the U.S. making Mexican foreclosure investing much more accessible to savvy real estate investors.
- Lack of litigation: In Mexico it is much less common for a defaulted borrower to execute a legal defense, meaning on average the property can be transferred in a shorter time frame.
- Low competition: While the real estate investing in the U.S. could be even be considered saturated, the Mexican foreclosure market remains largely untapped, meaning banks and lenders must keep their prices low in order to liquidate their foreclosed properties or defaulted loans.
Ensuring Safe Investments Since Day 1
At Urban Capital, it is our mission to offer safe real estate investment portfolios to our clients, with the absolutely highest caliber of service and customer satisfaction. Our experienced team of foreclosure lawyers manage the legal process from appraisal to title transfer, guaranteeing a smooth transition of ownership in the shortest time frame possible. Furthermore, Urban Capital guarantees every single purchase, and will cash out your investment at any point in the foreclosure process, even if the property has not been auctioned yet, no questions asked.
These are just a few of the guarantees Urban Capital offers to investors, to find out more about how we provide security to real estate investors, reach out day or night, and we will get back to you as soon as humanly possible.
Navigating the Foreclosure Process: Further Resources
For homeowners facing foreclosure, seeking guidance and assistance is paramount. Both the US and Mexico offer resources to help individuals navigate the foreclosure process and explore options to prevent or mitigate its negative consequences.
US Resources
- Homeownership Preservation Hotline: 1-888-995-HOPE (4673)
- National Foundation for Credit Counseling
- Housing and Urban Development (HUD)
Mexican Resources
- Sociedad Hipotecaria Federal (SHF)
- Comisión Nacional para la Protección y Defensa de los Usuarios de Servicios Financieros (CONDUSEF)
- Procuraduría Federal del Consumidor (PROFECO)
- Urban Capital Advisors
Conclusion
Understanding the foreclosure process in the US and Mexico is essential for potential investors seeking opportunities in the real estate market. By comparing the legal frameworks, timelines, and procedures, individuals can make informed decisions and navigate these complex situations with greater awareness.
For homeowners facing potential foreclosure, seeking guidance and assistance from relevant organizations and professionals is paramount. Both the US and Mexico offer resources to help individuals explore options to prevent or mitigate the negative consequences of foreclosure. Early intervention and proactive communication with lenders can significantly impact the outcome of foreclosure proceedings.
Potential investors considering investing in foreclosure properties should conduct thorough research, understand the foreclosure process in the respective country and state, and collaborate with experienced real estate professionals. This approach is crucial to identifying lucrative investment opportunities while minimizing potential risks.
Whether facing foreclosure or seeking investment opportunities, understanding the nuances of the foreclosure process in both the US and Mexico is key to making informed decisions and navigating these intricate real estate scenarios with confidence.
If you’re interested in learning more about how foreclosures can provide highly profitable investment opportunities, or would like to learn how to buy a house in mexico at a lower sale price using foreclosure investing, don’t hesitate to reach out, we are more than happy to clarify any doubts or questions you may have.
