Why you should, or shouldn't, buy a foreclosure
Home buyers may be able to get deals on foreclosures, which are often discounted in price, but buying foreclosures can be risky. It's essential to understand the pros and cons of buying a foreclosure before making a purchase.
First of all, there are several types of properties that are generally known as "foreclosures." A "pre-foreclosure" is a home which is in danger of falling into foreclosure, but is still owned by the homeowner. A "foreclosure" is a property that will be sold or repossessed by a creditor or a lender to recover the amount owed on it.
While pre-foreclosures are available for purchase from a homeowner, foreclosures can be bought at auction or as "bank-owned properties" (also known as "real-estate owned" properties) from a lender.
Pros of buying a foreclosure
You may be able to purchase a home at a lower-than-market-value price. If the home is in pre-foreclosure, the homeowner is looking to sell the home to avoid going into foreclosure. These homeowners are usually in a hurry to sell, putting buyers at an advantage.
Banks are also often willing to offer foreclosures at a discount -- the longer they hold these properties, the more it costs them in terms of taxes, maintenance, etc.
Foreclosures can be found at all sorts of price points (starter homes, luxury homes, etc.) and sometimes are only in need of minor repair or upgrades.
With some sweat equity, repairs and upgrades, a homeowner can turn a foreclosure into a home and see some appreciation in the property's value.
Cons
Since foreclosures are often offered at significant discounts, you may face steep competition and bidding from other buyers.
Foreclosures aren't always offered at a large discount. Homeowners in the pre-foreclosure stage may price a home higher than it is worth in the hopes of paying off a mortgage, taxes, etc. Banks are looking to recoup at least what's owned on the house, so they may only offer a slight discount.
If you are buying a foreclosed home at an auction, you may have to pay cash (the same day!) and may not be able to inspect the home before purchase.
Some lenders don't offer loans for distressed properties.
Foreclosures may need serious and costly repair. The previous owner might not have been able to afford fixes for the property and may have allowed it to fall into disrepair.
Foreclosures are often vandalized and looted; it's not uncommon to find major appliances missing, holes kicked in the walls and other vandalism.
Foreclosures tend to sit vacant for periods of time, which causes major maintenance issues. If a home is not maintained, its pipes could freeze, vermin and bugs could settle in and mold could grow.
You need to do your research -- a foreclosure can have liens attached to it. You may find yourself having to pay costly old debts associated with the property.
Foreclosures often are sold as is and banks often aren't interested in making or footing the bill for repairs.
At times, foreclosure buyers have to start eviction proceedings and pay legal fees to get the previous tenants/owners out of the home.
Purchasing a home from a lender can be a lengthy and time-consuming process that's full of red tape.
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With the extension of the first-time home buyer tax credit, many homebuyers are back in the market. The low interest rates, tax credit, and low property values make this the ideal time to buy a home. But with the added number of foreclosures, the homes currently ...
By QuickenLoans | 9 Comments
Comments
We have been making offers through a r.e. agent for a year+, with barely a counter (except for one of his props.) until recently actually...when we did get a 2nd chance after sitting in the back up position. Then I decided to try a different approach...and track down the listing agent...guess what...got the counter...and finally got the accepted offer (no one else would accept the terms) but also the l.a. of course was pushing our offer since they would get both the buyers and sellers commissions...it's a long story from there...and you must accept the agent is now "representing" both you and the seller (and I doubt ever equally!)...but I will bet you that you will get much closer to your accepted offers...I've essentially stopped using my agent and I'm flying solo! Good Luck!
The challenge in buying this house was not the condition because we hired an inspector and knew what we were getting into, but the bank contract that we signed with the bank to purchase the house basically stated that they were not committed to selling to us at any time until it was actually closed. So if another offered came in that was higher than ours, even after we spent the money for the inspection and spent the money for the appraisal, they still could option out. But we were able to close before they exercised that option....
I haven't sold many distressed properties but I know from personal experience, we wrote many, many offers before we bought in 2008. It's a challenge but if your patient and do your homework, you can pick up some great investments.
Best wishes,
Monamarie McCreary
Real Estate and Mortgage Broker
I worked with one client who bought a 3 bedroom home the East Willows of Menlo Park for 290K and today the fair market value is over 450K!! I also helped another buyer purchase her first home in for 350K and she loves the yard! Incredible opportunities!!
You can always contact me for more information.
Athena Chilicas Saldanha
Realtor
Certified Foreclosure Specialist
Frank
http://GoldsmithandCompany.com
Here's an industry secret: the factors that have the most impact on these REO assets' lack of mobility can be attributed to the following scenarios:
1. A significant portion of housing inventory are frozen in litigation (either individually or as part of a large pool of loans), which has resulted in such a backlog in the court system that it may take several years to process (while the borrower remains in the subject property totally rent free, tax-free and without any concern of eviction).
2. Generally Accepted Accounting Practices. Simply stated: a REO property is assigned a higher value while it remains a bank-owned, (or in the case of a Mortgage-Backed Security, an investor-owned) "asset". Once the property is sold, the property's liquidated amount is often considerably less than its assigned value as an asset. This loss becomes "actualized" and reported as such on the company's balance sheet.
Most of the company's that insured these loans (individually or as part of a larger pool) have gone bankrupt reimbursing these losses, so in most cases, the losses are now absorbed by the lender, the loan pool's investor(s) or the most frightening of all, the US Federal Government. Therefore, the liquidation of REO inventories must continue at a slow pace. If the banks and government did not regulate the volume at which these losses are "actualized", the financial impact to the US economy, and by proxy, the world's economy, would be nothing short of what scientists might refer to as an "extinction event".
The losses estimated to be associated with the REO inventory as it stands today makes our national debt of $14.4T look like something the tooth fairy might leave under our children's pillow. But hey, this is most likely the best buyer's market we'll ever see! If you have any skin left in the game, buy, buy, buy!
For help with foreclosed and distressed properties in the Upper Cumberland Region of Tennessee....email me Ann.Christopher@Crye-Leike.com I will be happy to help you find what you are looking for!
It's logical that ANYONE that has to go through a foreclosure has outstanding Lien on the equity of their home by another creditor besides the mortgage bank. Basically, assume they've maxed out their credit cards and may have existing home equity loans, so it is possible that you'll have to pay an additional $100k on top of the bargain $300k, bringing your total purchase price well above market value of the home.
Then, there is the possibility that the -now- tenants you're left to evict will trash the house and sell everything they can -including the kitchen sink- and you have no legal recourse to stop them. They can go as far as removing all the copper pipes for scrap, leaving you a gutted home. This of course will ALL need to be replaced which would leave you with another $100k to just bring the house up to par.
In the end, the bargain $300k home you thought you bought becomes a house you paid well above market price for.
Another warning is about the actual bidding process. In the blind bid, we assume the auctioneer is impartial, but not so, their incentive is to coax the most from bidders and will introduce a non-existent higher bid to milk you for more money from the highest bidder. Simple example is... you bid $1000 and you're the one and only bidder, the auctioneer will tell you the highest bid is $1200 and ask you for $1250. If you fall for that, they'll tell you another bid came in for $1500 and ask for $1750. Basically, even though you were the highest bidder, you were milked for an additional 75% -totally legal.
My advice would be, IF it's at auction, why expect to pay more than half for a property you know nothing about and never had the chance to inspect? There are reasons why it wasn't purchase during a short sale.
Trudi why don't you try a lease option? or basicially (rent to own) you lease your house for xxx $'s which will pay for a different home, you keep title to the home and in xxx years sell. It is the best of both worlds you will have money coming in to pay for rent or mortgage for another place while still owning your property.
question... what is short sale??