I would like to clarify the advice Elizabeth gave about buying "directly " from the bank. The " bank" that owns the property will not deal directly with the consumer. the consumer must be represented by a real estate agent. The bank is also represented by a real estate agent. So there are middlemen involved when buying bank owned homes.

The only way to buy directly from the bank is if you are a cash investor that is purchasing in bulk, 20 to 100 or more houses at a time. Generally these types of investors are other corporations with millions of dollars in cash available.

There are many types of distressed homes. Bank owned homes are called foreclosures. These are also called REO's. To confuse you, the home may be purchased on the courthouse steps at the time the bank is scheduled to take title in an auction process, which is also called foreclosure. Then there is the pre-foreclosure, which is also know as short sale, foreclosure pending, and defautl period. The "short sale / pre-foreclosure" is the time before the owner has formally lost the house to the bank. They may still be living in it, or they may have voluntarily moved out. The bank cannot evict them until after the bak takes title to the home.

To confuse you still further some houses are offered in secondary auctions that are held after the bank has acquired title. So not all auctions are of the all cash at the courthouse steps variety.

Do you need to pay the amount owed? No. the amount owed is irrelevant to the market value. You need a real estate agent to guide you in bidding because there are hundreds of different companies representing hundreds of different banks. each house has a different set of forms called addendums that have to be interpreted for you. The most efficient "auction" for both the banks and the buyers is the MLS.

By using the MLS, you and your agent can review 99% of the properties available for purchase including bank owned at full retail prices, bank owned - priced and available for auction style bidding,

The MLS also has listings of the short sales and pre-foreclosures as well as builder close-outs, probate sales, bankruptcy sales, relocation buyouts, and even normal human being sellers that need to sell for personal reasons.

You and your agent then choose a few house to go look at that meet your wants and needs list. Then you and the agent discuss which one (s) you want to make offers on . You may be competing with other buyers.

If the home appears to be priced very low in comparison to similar homes you might be competing with many other buyers. Yes even this market. These MLS multiple offer situations are also known as "auctions" - This often results in a sale price that exceeds the list price. I can prove this.

The real estate market is very efficient for sellers, Becasue of wide exposure to most serious buyers, sellers are usually able to receive a high percentage of current market value for the houses. The key word is "current" market value. The reason why houses are such deals today is that the current market values in Sacramento are 30 to 50% below the market values of the peak of the market 3 years ago.

Wed Mar 12 2008, 09:47

All good advice. Nothing I can add. Free list on foreclosuresus.com

Wed Mar 12 2008, 06:27

Ricky, both William and Elizabeth are absolutely dead on with their foreclosure advice, hopefully you're logging back onto this site and getting this information! With the constant barage of foreclosure-related marketing from various companies through various channels, it's hard not to believe that there's a deal out there for you! But the simple fact remains that homes tend to sell for market value. If the subject property is a short sale or REO, the price should be discounted when compared to a regular sale.

My best advice is if you're serious about a home purchase, and you need to a mortgage, get approved now! The longer you wait, the higher scores you'll need, the higher your down payment! I can't stress this enough as I turn away most borrowers that I could have approved for a loan just months ago!!

Jeff M

Tue Mar 11 2008, 22:04

Great question for todays market...... In the past months, you may have had encountered the term “foreclosure” a dozen of times especially with the current crisis in the national housing market. If you are lucky enough not to have any problems with your mortgage payments, you should still try to understand how foreclosure works – just in case. For starters, foreclosure is the repossession of a property by a mortgage lender because the owner failed to fulfill his mortgage payment obligations.
These properties can be listed with very aggressive prices, in some cases we are seeing multiple offers because of this. The inspection period for a buyer can be moved up from the standard 17 days in a normal transaction to 10 or even 5 days depending on the bank. In most cases the banks list these properties "as is" ..... You still have the right to your inspections but need to understand that the bank may not agree to repair anything. If a buyer can not close escrow on time there can be penalties ranging from 50.00 per day to 150.00 or more in some cases. If you are looking to purchase a bank owned home they can be a great bargin but you should work with a buyers agent who knows what to look out for and help guide you...... thank you for your question I hope this helps

Tue Mar 11 2008, 20:36

So much depends on whether it is a pre-foreclosure ( meaning a short sale), a post-foreclosure (meaning a REO) or a home that is going into auction (teaser introduction rates, which have NO bearing on sales price).

I worked on a banked-owned REO last week. This was a condo that the seller paid $240,000 for a year ago. It was now owned by the bank and offered at $160,000. Comparable sales were $185K to $200k. The buyer wanted to offer $125K. The buyer was clueless. It was my fault -- I hadn't spent enough time educating her to figure out what the numbers mean.

Plus, banks aren't stupid. Their REOs sell about 3% under list price, if that. They are already priced well.

The most important thing is to check comparable sales -- those sales within the past 3 months. It doesn't matter what the seller paid, unless you want to compare the price to 2004 prices, which is where we are at -- but what's most important is the solds, the actual closed sales, report for the past 3 months. If they are in line with the asking price, and you can further discount that to be within 2 to 3%, you're in like flint!

In most cases, you are better off waiting until the bank has title to the home through the trustee's sale and then working directly with the bank. Banks put homes on auction at a reserve price of what is owed. 99% of the time, what is owed is more than the home is worth. Most foreclosures are homes that have originally sold within the past 3 years (not 10 or 20 years ago, sorry), and those homes are not worth three-year-old prices. Most are worth 4-year-old prices or worse.

Don't get caught up in the hype. Short sales, for example, are no bargain, and I don't care what anybody says.

You can buy a foreclosed home directly from the bank as long as you are prequalified to obtain a loan or can pay all cash. You can buy foreclosed homes from auctions as long as you are willing to pay cash and not do inspections. If I were you, I'd buy REOs.

Tue Mar 11 2008, 20:30