Jack Macioce, Home Owner in Pittsburgh, PA

Is buying a foreclosed property similar to buying "non-foreclosed" property?

Asked by Jack Macioce, Pittsburgh, PA Mon May 9, 2011

Please include any process differences, advice, certain forms needed, etc.

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Buying a foreclosure is similar in that it's transferring ownership of a property from one owner to another. The fact that the seller is a bank who is trying to recover their investment makes this a very different and challenging process.

Please be very careful with foreclosures! Often times they sound like a great deal - the buyer gets lots of house for a very little amount of money.

But make sure that you understand what you're getting yourself into. Banks put themselves in a "first lean" position which gives them first dibs on repossessing the property, but there are usually other parties that also have leans that need to be satisfied such as a second mortgage lender, a public utility, a contractor, etc. Just because the price of the property is low, doesn't mean that there won't be THOUSANDS of dollars in leans that must be paid - not to mention attorneys fees!

Second, there are sort-of three separate ways of attaching a value to a property - one of them is sale price, which is typically market driven. Another way of looking at the value of a property is "replacement cost", simply what it would cost to completely rebuild the home as it currently stands. And the third valuation of a property is the "assessed value", which is what is used for tax purposes. Just because you are able to buy a foreclosure for a great price, you will still pay Real Estate taxes based on the assessed value of the home, and you will still owe your insurance company based on the replacement value of the home.

Third, there are lots of other little strings attached, for example the buyer is often times expected to pay the entire transfer tax (typically the buyer and seller split this fee 50/50). So make sure that you understand your entire "cost to close".

So to recap:
-Make sure you understand ALL of the costs that you're expected to pay in order to own the property outright.
-Don't buy a house that you wouldn't otherwise be able to afford, because once you own it your operating costs (taxes, utilities, insurance, etc) will be based on what the "real" price of the house is, not your heavily discounted wholesale price for the house.
-Understand ALL of the associated fees and costs to close.
1 vote Thank Flag Link Mon May 9, 2011
The process is very similar but there are some differences. When you are buying a foreclosure you are dealing with a bank as the seller. Many of the banks have their own process, paperwork and timelines. You won't always get the flexibility you might have when working with a private owner. You could also be working with HUD, Fannie Mae or Freddie Mac on a foreclosure and each of those have specific processes and paperwork that needs done. They may require specific amounts of hand money and HUD requires a HUD approved broker/agent. They will be more specific in your closing deadlines, inspection deadlines and contingencies. Finally, since the homes are usually as-is you ability to negotiate repairs can be difficult and financing can be more of a challenge if your loan requires repairs to the home. Of course, there is a trade off, buying a foreclosure can get you a very good price you just have to work within the guidelines of the seller. Good Luck.
1 vote Thank Flag Link Mon May 9, 2011
Jack

You might find this helpful:
The 4 Foreclosure Related Real Estate Opportunities
http://www.trulia.com/blog/lyle_wolf/2010/11/the_4_foreclosu…
0 votes Thank Flag Link Sun Jun 12, 2011
Hey Jack-

I feel badly that you have gotten so much in the way of chatter from agents outside of the area. Bottom line is that there are a lot of differences, and I don't think anyone can really do an ample job of explaining those differences, unless they also work withthe asset management companies and banks that sell these properties. It's especially different in Pittsburgh, where there are different township and boro requirements with respect to dye testing, and occupancy permits. If you want a full tutorial about purchasing a foreclosure/REO property, call me at 412-320-9525. It's what I specialize in, and I am right in Mt. Lebanon. we are a heavily REO inventoried office, and I will tell you the good the bad, and the ugly. Peace! Chad
0 votes Thank Flag Link Sun Jun 12, 2011
If you are looking for Foreclosures that are bank owned, the best infirnation is to subscribe to a private listing service. I use Redloc, and they offer all kinds of training material.


David Cooper..Las Vegas Foreclosure Investor in Bank Owned REOs with Cash Flow. email or call for FREE daily list. +1-7024997037 not a real estate agent
0 votes Thank Flag Link Tue May 10, 2011
The process is not the same.
0 votes Thank Flag Link Tue May 10, 2011
Jack-

It depends on the type of foreclosure. If it is an "REO" meaning bank - real estate owned property, HUD, or VA, it is put into the MLS sytem as such. There are special rules and each situation is different. Your buyer's agent will read the instructions and have to follow to a "T" or the bank, HUD, or VA will kick it out without considering the offer at all.

Foreclosed properties often go for auction at the courthouse, which is something not real estate agent oriented.

Distressed properties such as short sales are treated very similary except for requiring lender(s) approval and other processes such as equator,etc.

I know that just sounds complicated but it really is that complicated, and not for first time home buyers, and not for the faint at heart.

Cathy Bureau
Web Reference: http://www.CathyBureau.com
0 votes Thank Flag Link Tue May 10, 2011
Jack
You might find this helpful:
The 4 Foreclosure Related Real Estate Opportunities
http://www.trulia.com/blog/lyle_wolf/2010/11/the_4_foreclosu…
0 votes Thank Flag Link Mon May 9, 2011
The typical foreclosure property has more "as-is" condition, meaning you migh have delayed repairs and maintenance to deal with


David Cooper..Las Vegas Foreclosure Investor in Bank Owned REOs with Cash Flow. email or call for FREE daily list. +1-7024997037 not a real estate agent
0 votes Thank Flag Link Mon May 9, 2011
The difference between purchasing a distressed property and a traditional one are the motivation of the seller. This makes large cash offers necessary because lenders do not want to finance a property their liquidating in a dropping market. Each lender has its own process. I recommend visiting lender websites for more information.
Web Reference: http://www.southercalre.com
0 votes Thank Flag Link Mon May 9, 2011
Yes in the same way that ordering a fish sandwich is similar to buying a car. Seriously Jack, I am happy to help. there are alot of hoops to jump thorugh and there is usually a considerable amount of additional paperwork etc. There is alo a premium on the typeof financing you qualify for versus the condition of the home in question- ie: it just may not be a doable venture:) Anyway all good answers from good agents so far-- just thought i'd through my hat in the ring. It is a different process to be sure!
0 votes Thank Flag Link Mon May 9, 2011
Thanks for your question Jack. Yes, there are similarities such as the process. One thing I tell buyers is that it is easier to negotiate a "good" price because the person on the other end of the phone is just an hourly paid employee with no emotional or financial ties to the property. As far as a pre-approval, home inspection, walk-through, closing etc... that is all the same. Some banks will have their own forms but your buyer's agent will be able to navigate through them. I recommend patience during the process because of the above mentioned reason the the "good deal".

Good luck, hope this helps.
0 votes Thank Flag Link Mon May 9, 2011
Jack,

There are similarities and there are differences. It's like an apple tree and a peach tree. They are both trees.

Buying from a more typical homeowner/Seller you are usually dealing with somebody who has occupied the property, has firsthand knowledge about it and has more information to disclose as well as being emotionally attached to the property.

The REO (Real Estate Owned what the banks call the foreclosure properties they have taken into inventory) usually require more repairs/renovations and there are typically more hoops for the Buyer to jump through to close the transaction. However the bank or corporate Seller has no emotional attachment and has acquired the property for one reason and that is to get it sold.

But remember each bank/corporation is different in the way the handle property sales just like each homeowner Seller is different. Every transaction is unique and should be treated as such.

Blair
0 votes Thank Flag Link Mon May 9, 2011
As said in the previous answer the Bank as the Seller can be more difficult, as they have no emotion in the sale of the property, it is nothing more than a Business transaction to them. However, it is not a difficult process. You would have to have a pre-approval for a mortgage or proof of funds if you are paying cash for the property. Any Home inspections are normally the potential Buyers responsibility to turn on the utilities in your name and have them turned off after the inspection.
I would be happy to assist you in your search for a Home, whether you decide to buy Bank Foreclosure or through a traditional Seller.
Feel free to contact me
412 537-6636
0 votes Thank Flag Link Mon May 9, 2011
Hi Jack,
The purchase process is slightly different. However, as long as all liens & title are clear, you typically still hold the same type of ownership as you would if you bought a non-foreclosed home (upon closing). Financing a foreclosed home can be a challenge in today's market but is still possible depending on the current bank/owner and condition of the property. Banks typically require you to accept the property "AS-IS", while non-foreclosed homes usually leave you the option to negotiate repairs and/or credits before closing. Best of luck with your search!
0 votes Thank Flag Link Mon May 9, 2011
A property that has been foreclosed is just like any other property, it is owned by someone who bought it at the auction on the courthouse steps and is owned by someone or maybe the bank has it now. Now it's a bank owned home or REO property and the bank is selling it. Dealing with a bank as the seller can be different since the bank does not think like you or I and they don't have their personal money in it like we would. They can be stubborn and refuse to fix things and the deed you get will be a special warranty deed. Your agent will be able to guide you through the process.
0 votes Thank Flag Link Mon May 9, 2011
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