Want to Buy a Forclosure?

Are you hoping to be one of the buyers out there who score a deal during the bad housing market?  Taking a look at foreclosures are a good bet for you but there are some things to keep in mind. 

There are plenty of foreclosures out there right now and lenders are definitely looking to get rid of them.  This isn't exactly the time to be holding on and waiting for a better offer.  

Apparently there are different stages of foreclosure and they all have different amounts of risk and reward so you can choose what fits your comfort level.

Pre-Foreclosure

A home goes into pre-foreclosure when a borrower has fallen behind on his payments, but the house has yet to be auctioned off.  If you wanted to go over all the delinquency notices that are filed with the county by the lenders when an owner misses a payment, then you can see if any of the homes meet your criteria. 

Then you have to approach the home owners and see if they want to sell.  This has potential to go really badly because people often don't want to move and a low ball offer could be insulting.  Wording is important.  You need to point out that you are offering them a way out of trouble.

You are essentially offering them a short sale, which is a buyer paying less for a house than the mortgage owed.  The lender has to agree and then forgive the rest of the debt.  Normally this would take some persuasive power but today's market certainly makes it easier.

Sheriffs' Sales

Homes in default are auctioned off on the county courthouse and can be real bargains, but the process is a crap shoot.

There is no inspect the property, so there's no telling how much work it needs. You also don't know what kind of liens there are against the home so you don't know what you end cost will be.  Most importantly, you need to come with cash.  10%-20% has to be put down on the spot, and the rest in a matter of days.

Even after all that, you decide to make the purchase and feel it's a good move it can still fall apart.  If the current owner can come up with enough cash to repay the buyer the amount of the winning bid then they get to keep it.

Post-Foreclosure

When a lender takes a house back from an owner the property goes back on the market.  This is called an REO (real estate owned) property. This is a normal listing with a broker and the deal to be had is not as big as the other stages.

These homes are often listed on the lenders websites, including Freddie Mac and Fannie Mae.  This is a less risky way to go because the title is clear and the home is vacant.

There are also REO auctions.  Some auction companies will buy a bunch of these properties from the lender at once and then put them on auction.  These can be sold quickly for quite a low price and can start the rebuild of a neighborhood.

http://money.cnn.com/2008/08/06/real_estate/Foreclosure_bargains/index.htm?postversion=2008080811