Foreclosures...Risk vs. Reward: Part I
Foreclosures... you've seen them by the hundreds each and every week appearing on the national news outlets and the Defiance county sheriff's auction site. You've also heard exciting stories from late night infomercials and the typical friend of a friend who got a great deal, but are foreclosures really the bargain that we perceive them to be? This week's article is the first of a two part series on foreclosures. This week, I will lay out some of the basic facts about buying foreclosed properties at auction and, address a few of the most common misconceptions.
Each month in Defiance county there are several properties auctioned off on the sheriff's steps. In fact, at the time of this writing, the sheriff's website has eleven properties to be auctioned off in just the next two weeks.
The first thing that must be understood, is these properties can be bought at the sheriff's auction, but most likely not for the 2/3rds appraised value. It's true, if someone wanted to purchase one of these properties at the auction they can do so but, the property will most likely be bought back by the lender who is holding the loan on the property no matter what the sheriff's appraised value is on it or the 2/3rds amount is. This is because the lender is trying to protect their interest in the property. For example, if the home has an appraised value of $50,000 but there is a mortgage of $55,000 on it then the bank is most likely going to bid up to $55,000. If however, the same property only has a mortgage on it of $30,000 then the lender will only bid up to that amount. In either scenario whoever bids highest will get it. Through thorough research potential buyers can discover what is owed on the property, as well as, any liens that may be on it. Thus, discovering what kind of a deal might be made.
Secondly, you must understand the requirements and risk factors in order to buy a home at auction. One must have everything in place to follow through with the purchase. For instance, the purchase cannot be contingent upon getting a loan, getting an inspection or contingent upon the buyer selling their home. The buyer must be willing to purchase the home "As-Is" without inspecting it first and then have the resources available to purchase it. This is very important to remember as the home comes with no warranties, comes with only a sheriff's deed and the purchaser is not allowed to inspect the property prior to bidding.
Through proper research, knowledge and ability to meet the purchasing requirements and a good understanding of the risk factors one can find some great purchasing opportunities at sheriff's auctions. But, a miscalculation in just one of these areas can result in tragic financial consequences for a purchaser. These are just a few of the different nuances that one faces in the purchase of property at a sheriff's auction. If you are someone who enjoys higher risk challenges, then buying a home at a foreclosure auction can be perfect for you. If, however you're not, then waiting for the home to enter into the general housing market may be a better choice for you to consider.
Next week, in part two of this two part series, I will write about what typically happens to a property when it fails to sell at auction, returns to the lender and then becomes available on the open market. Until then, happy home searching.
Scott M. Williams is a licensed Realtor® at Butler Mohr GMAC Real Estate in Defiance, Ohio. He can be contacted at:
Scott@butlermohr.com or 419-438-1165
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