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Sue, Home Buyer in West Palm Beach, FL

Is a closing on a foreclosure any different than a "regular" closing?

Asked by Sue, West Palm Beach, FL Sat Aug 9, 2008

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The word "foreclosure" may take different meaning depending upon the situation.

1) A property in a foreclosure process, that has a high enough market value to cover the mortgage payoff, selling expenses, and all other liens on a property is no different than any other sale. The sellers are the people who purchased the property, and they are ones who will sign the contracts and make all decisions about the sales process and closing. The sellers may be rushing against a clock, depending upon where they are in the foreclosure process. The sellers still own the property, and there is no reason they need bank approval for the sale. The sellers might decline to make repairs, and they may want a quick sale. The difference in closing may be that the sellers want it done fast.

2) If the property is in foreclosure and the collective liens (mortgage and other) exceed the market value, this would now become a short sale. (Not all short sales are in foreclosure, but it is common.) A short sale exists when the amount of money a property can bring is short of the amount needed to pay off all the obligations required to close title. The lender, and/or other lien holders, agree to take less money than the amount due in order to let the title transfer to the buyer. The lender may forgive part or all of the debt; or the lender may require the sellers sign a note to pay the lender after closing part or all of the deficiency amount. If you want to buy a property in foreclosure and the value of the property is less than the collective liens, it will require the approval of the lien holders. The seller and buyer still sign the HUD, because the seller is still the property owner. You negotiate w/ the seller, and the seller sends all the contracts to the bank (and other lien holders) for approval. You wait...and sometimes wait some more. This requires patience and the outcome can be unpredictable. It's possible, and done every day. Just be prepared for the unexpected. The success rate decreases when there are multiple lien holders.

3) A foreclosure at auction or sheriff sale is a court ordered sale. You might not get to see the inside of the property, and have no warranties. You won’t have a title policy and your deed may not have any type of warranty. This is not for the inexperienced. There is risk involved and one should be ready to bear that risk and fully understand it before proceeding in to this arena.

4) A property that has been foreclosed has been through the complete legal process and the bank now holds the title. You are now buying an REO property. It is bank owned, and the bank is your seller. Expect little information, no disclosures, and an "as is" sale with no repairs or credits. Neither the agent, nor the bank will have much info. You will be able to see the property, do inspections, and even have the right to walk away (if that right is included in the contract) if inspections reveal major or substantial defects. Once a bank (the seller) signs and accepts your offer, it moves much like a regular sale. The closing process is much like it would be with any homeowner, except the bank is on the HUD since they are the seller.

My comments here are only an overview and not meant to be all inclusive. There are many more details involved, and I don't mean to oversimplify it.

Deborah Madey - Broker
Peninsula Realty Group - New Jersey
1 vote Thank Flag Link Sat Aug 9, 2008
Deborah Madey, Real Estate Pro in Brick, NJ
Beware. I'm a buyer and we were told that the bank, Bank of New Yor, needed 48 hours to approve the HUD. It's been 5 days and still no approval. Our lender will be pulling the funds out today. if there's no approval or we'll have to pay daily fees to extend the rate lock They won't even tell us what is wrong and how long it will take for them to feel comfortable to approve the HUD. Their asset manager has told them they MUST approve and still nothing. We got *royally* screwed. Don't buy foreclosures when Bank of New York is involved in any way shape or form. You might also want to consider moving any accounts or sevrices you have with them to another bank that respects deadlines.
0 votes Thank Flag Link Thu Dec 11, 2008
Pay close attention to Michael's response. My client and I showed up at our REO closing only to discover that the bank had not signed off on the HUD 1. We did manage to shake loose a signed HUD from the bank after about 2 hours, but it was not exactly smooth sailing. Make sure your lender issues timely lender instructions and the title company gets that HUD 1 to the bank for their approval well in advance, if at all possible. Even if you give the bank plenty of time to sign the HUD 1 (48+ hours), be prepared for the possibility that the bank will not have fulfilled its paperwork requirements in time on your closing date. We decided to hunker down and wait for the paperwork to come in instead of postponing closing until the next day - you might want to schedule your closing around mid-day because of this. We were scheduled to close at 4 PM, and the title company wasn't exactly thrilled to have us still hanging around at 7 PM, waiting for paperwork from California to arrive.
0 votes Thank Flag Link Sat Aug 9, 2008
GREAT QUESTION: No difference in the closing EXCEPT the bank has additional documents you are required to sign. Most foreclosures listing/buyers agent prior to closing I have determined ended in drama created by the bank. I always state to my clients never count on purchasing the house till you have the keys in your hands from the title company. If you are seeking a foreclosure not started the process in some instances based on the amount of equity can be a bidding war between buyers. http://www.lynn911.com http://www.homes-for-sale-dallas.com
Web Reference: http://www.lynn911.com
0 votes Thank Flag Link Sat Aug 9, 2008
Dear Homebuyer in West Palm Beach,

The time frames set out by contracts used by realtors may be extended as well as getting an answer from the bank. The bank may not be interested in any repair work on the house and sometimes seller closing costs may be passed on to the buyer. Other than that, the process is the same. I hope I have answered your question. Your title insurance should protect you from outstanding liens. Good Luck. There are some great deals out there.

Jan Ostler-Walker
Prudential Network Realty
Atlantic Beach, FL 32233

0 votes Thank Flag Link Sat Aug 9, 2008
If you simply mean the actual closing, then no, there is really no major difference. There is still a buyer and seller, paperwork to sign (lots of paperwork), etc. The only thing that comes to mind for me is, the HUD, which may have to be approved by a few different people in the bank that is selling the foreclosure, as sometimes they will require 24 - 72 hours prior to closing to review and approve the HUD. In case you aren't sure what a HUD is, it is simply the paperwork that that tells all parties, where the money is going and who is getting what and is usually 2 pages long, but sometimes 3.
0 votes Thank Flag Link Sat Aug 9, 2008
For the most part no. Biggest difference is you won't have a happy home seller siiting at the closing table. Ask your Realtor to take you through the process step by step before you get to the table. Good Luck, Jack Vance
0 votes Thank Flag Link Sat Aug 9, 2008
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