Foreclosures

There’s a few different opportunities regarding foreclosures, depending on where the people are in the foreclosure process and some things you should know about the process itself

1) When a homeowner misses a payment and falls more than 30 days behind, the lender may record a notice of default.   Notice of Defaults are public records, and you can usually view these at web sites such as www.realtytrac.com.  From the time a lender records a Notice of Default, they have to wait 90 days before they can set a sale date to foreclose on the property.  You can, at this point, make an uninvited offer to the homeowner to see if they are interested in selling. The trouble is that you generally aren’t going to get to see the property beforehand, and it’s possible the seller’s loans are higher than the price you’re willing to pay, making this very difficult.  Many times, sellers in this position may try to do a short sale, but sometimes they simply decide to allow the lender to foreclose instead.

2) When a bank actually reaches a point where it forecloses on a homeowner, they will usually begin with an auction of the property on the courthouse steps. (Or other publicly disclosed location) This is where you can find a deal, but they are generally few and far between. The minimum bid is usually the amount owed to the lender, which again in many cases in this market can be more than the market value of the property, so the majority of homes don’t get any bids and will simply go back to the lender as an REO property to be marketed and sold with an agent. If you do want to bid on a house at a courthouse auction, there is no purchase agreement, no inspection of the property, and you must have a cashier’s check for the purchase in hand – so it’s not very practical for most people who don’t have a lot of money, and a lot of experience in this area. You will also generally have to be willing to do a lot of fix up work.

3) Assuming a property doesn’t sell in a courthouse auction, it becomes “bank owned”. At this point, most banks hire real estate agents to list and market the property like any other seller might. There are agents that specialize in bank owned properties. This is a more practical time to buy foreclosures, as you do have the protections of doing inspections and have time to finalize a loan on the property, although banks are much tougher to negotiate with than the average seller, and have lots of contract addendums limiting their liability. You also won’t get any property disclosures, as banks are exempt from the typical disclosures required by sellers. The banks are becoming more flexible on pricing, and there are definitely some good deals to be had. However, there is nothing special or secret about the listing of these homes as they are listed on the MLS like all other available properties, so there is no secret list of foreclosure properties out there that you’re not getting to see, Another thing about foreclosures that is pretty consistent is that they tend to be fixer-uppers, as people that are losing their homes to foreclosure aren’t real big on keeping them in good condition.

4.) At this stage, you can purchase a foreclosure with a typical loan and be represented by a real estate agent.  When you make an offer on a foreclosure property, you can expect a number of things.  First, the bank will usually have their own contract which they will call a “counter offer” or “addendum”.  The terms of these can vary depending on the bank, but some things you can count on is that it will be 10-15 pages of legalese that takes away most of the buyer’s rights in a typical purchase.  You can expect the sale to be “as-is”, meaning the bank will not make any repairs to the property, regardless of what items are uncovered in inspections.  There are some exceptions to that if something arrises that is both fairly major and unexpected, as the bank may bend on repairs or price if something they would need to disclose to other buyers arrises, but for the most part, expect that they will not.  Also, you can expect a limited time period to complete any inspections, perhaps 5-7 days, and have that short a time frame to make a decision to proceed with the sale.  If you do get into a purchase of a foreclosure, you should review all of the bank’s documents very carefully to make sure you understand the terms of the agreement.  Overall, foreclosures can be excellent deals if you’re aware of and can navigate all the potential hazards.