Buying a Foreclosed Home: How to Get the Most Out of the Process
OK, so by now you all know what a foreclosure is and something about how it works. Every state has its own procedures, time periods, redemption periods, etc., and you need to know how your state works.
Finding a property about to be in foreclosure, in foreclosure and already foreclosed is a simple job these days - they are all around you. But how do you go about buying one? Is it a good deal? Is it worth the time and money? How do you know?
The answers to these questions depend on the property and where it is in the process. There are three points in the foreclosure process where you can buy the property and each has pros and cons. We'll talk about each one in the order in which it comes.
Buying From The Distressed Owner Pre-Foreclosure
You found someone who's behind in their payments, looking for a way out, wanting someone to make them an offer. The property is not listed with a real estate company, it's a For Sale By Owner (FSBO) or you found them some other way. Doesn't matter to you, they'll probably agree to take less if the house is not listed since there's no commission to be paid. So you talk to the seller, come to an agreement on price and terms, and you buy the house. You just got yourself a great deal because the seller was so distressed they were willing to take anything just to get out from under. Great! Is it? Well, here's two "cons" to that situation.
1. The seller didn't tell you, but they were contemplating filing bankruptcy. A month or so later, they file. Bankruptcy court decides the seller didn't get as much money for the house as they could have, so Bankruptcy court sets aside the sale to you and puts the house on the market. Wow, you're thinking, can they do that? You betcha! They call it a fradulent sale (and they have a year after the sale to do so), not because you did something wrong, but because it sold for less than the market value.
2. The seller decides later that they've been had. They sue you and the court finds in their favor because you are a sophisticated real estate purchaser and they were just poor slobs who didn't know any better and you ripped them off. Can that happen? Again, you betcha! There is all kinds of paperwork you can have the seller sign to try and limit your exposure to this kind of thing, but will it save you? Maybe, maybe not. Most of it is worth about as much as the paper it's written on.
Buying At A Foreclosure Auction
The foreclosure process is just about done! The last thing that happens is the auction. Here are a few things of which to be aware.
1. Make sure you do your homework! You can do your own search through the county recorder's office, but unless you are experienced at that sort of thing, missing something (like an IRS lien) could be devastating. The best thing to do is make friends with an escrow officer at a title company who can give you information about what liens are against the property. Then be sure to use him/her to do your next escrow! The IRS has the right to buy the property back from you, within a certain period of time after you buy it, if they have a lien and they decide it would be worthwhile to do so.
2. Most foreclosure auctions require that you pay the entire amount of your bid in cash (usually a cashier's check) right then and there, so you have to show your money to the auctioneer before they'll let you bid. Make more than one cashier's check - one for the opening bid and the others in varying amounts so, if you are the successful bidder and the price is less than the total you were willing to pay, you don't have to give them all your money. Decide before you get there what the top price you are willing to pay will be and stick to it! Make your cashier's checks payable to yourself - they'll be easier to put back in your account if you don't buy the property. One other little note: There are people who make a living buying property at foreclosure auctions, and they all know each other. So if a newby is there, they have been known to bid the property up just so the newby pays more than it's worth because they're all caught up in the excitement of the auction. Whoa, you say, that doesn't happen! Oh, you betcha!
3. You can't see the inside of the house. You're buying a pig in a poke. You could walk up and knock on the door and ask the seller to let you walk through, but they are more likely to slam the door in your face (or shoot you) than let you in. Besides, everything in that house belongs to them until the auction takes place, so you have no way of knowing what would still be there after the auction. People have been known to take everything: appliances, sinks and toilets, kitchen cabinets, furnaces, hot water heaters, carpet - you name it. And copper pipes - copper is real expensive these days and worth some money! These things are the exception, not the rule, but it can happen. Hey, you're thinking, they can't do that! Yes, they can - You betcha!
Buying From The Lender After The Foreclosure Auction
The foreclosure is completed. No one bought the property at the auction, so the property reverts to the lender who foreclosed. So, this is the best time to buy, right? Because the lender is willing to deal because they don't want the property, right? Well, yes and no. While it's true that the lender doesn't want an REO (real estate owned) property to be on their books, they also want to get every penny of their loan paid back, plus whatever it cost them to foreclose, plus whatever they have to pay to maintain the property after they get it. That amount just keeps going up and up and they want it all! Every lender is different and has different policies, rules and regulations which affect their decisions regarding REOs. So what do you have to look out for in this scenario?
1. You still have to do all the necessary inspections (and then some) to verify the condition of the property and the lenders won't pay for any of them. That doesn't mean you can't ask for a credit toward closing costs and make it big enough to cover all the inspection costs; sometimes that works. Most lenders don't want to pay for water, gas and electric when they own it, so you may have to make arrangements somehow to get the utilities turned on so the inspections can be done.
2. There probably aren't any appliances. The former owners may not have taken everything, but it's not unusual for them to take the appliances, ceiling fans, chandeliers, that sort of thing. And there is always the possibility that something was done which is not visually apparent, which again points out the need for all inspections to be completed.
In Closing
The intention here is not to scare you, but to make you aware of what can happen. Knowledge is power, and if you know what to look out for, you can make better decisions. Are foreclosures a good deal? As long as you protect yourself and are aware of the drawbacks and the issues, they can be. Should you buy one? That's up to you to decide.
WWW.HELGAVILLARREAL.COM
Hi Helga!
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