From my experience, you have to be careful with buying a foreclosed properties. Banks are not always in the position to negotiate if the home is priced at market value. But, in many cases, you can pick up a great deal on a home, just be aware that you may still have out of pocket expenses once you purchase the home.
In many cases, (as is the case in NJ), the buyer is responsibie for all inspections, certificate of continued occupancy, and repairs as a result from failed town inspections.
Trips to the town's planning board or zoning board will be required to make sure you are fulfulling any items you need to correct after a town official approves a CCO or CO. Town officials are usually the end all on inspections items. Unexperienced agents may find it frustrating in handling town officials effectively.
As others have stated as well on this issue, banks are sometimes slow to respond to offers and counter-offers.
It's true that foreclosures are on the rise, but lending guidelines have also tightened. So would-be buyers from yesteryear who could easily be approved for a mortgage loan may find it difficult to obtain approval today, unless you have undoubtedly very good credit.. I hope you are in a position to receive a great rate on a loan.
Good luck with your foreclosure purchasing endeavors.
It's risky to buy at the courthouse steps and not for the faint at heart.
REO properties are straight forward, but banks are not always quick in their responses. Once a property has been foreclosed and is lender owned, the title is clear.
There are essentially 4 stages of foreclosure: "pre" preforeclosure, Preforeclosure, foreclosure, and REO
- "Pre" Pre-foreclosure is before the homeowner has formally received notification that the process has started. In theory, this can be anyone that's about to start missing payments or anyone that is behind on payments and that the bank has not started the formal process. This may range a few weeks to a year or more. We have one client where the bank took 14 months to start the formal process. Certainly, this is not the norm.
- Pre-foreclosure: This is when the formal process has been started by the lender. This is the period from which the lender has notified the homeowner up until the actual sale. Again, this can be very quick or can be drawn out for a very long time. Attorneys fees, late payments and interest add up quickly in this phase. In this stage, it is most likely that a lender will accept a short sale on the property.
- Foreclosure: We refer to this as the actual sale. Depending on where you are looking to buy, there may or may not be a redemption period during which the owner can reclaim his/her property by paying off the debt, fees, etc. You will typically need to pay cash the day of the sale here. The bank is most likely in attendance to protect their interests and set the starting bid.
- REO: If the property does not sell at the actual foreclosure sale, then it becomes an REO (Real Estate Owned Property). The bank now owns the property and has to find an agent to put it on the market.
At each phase, you can find great deals potentially. You just need to know what to look for, what considerations to take into account, and potential pitfalls.
The inspection issue has been discussed in previous answers. I would always go with an inspection even if you're not going for a foreclosure. This is the best way to protect yourself. But typically, the inspection on a foreclosure is not going to help you get any money credited back or any repairs done. Most properties are as-is period. If you're getting it prior to the sale, the owner probably doesn't have the money to repair items. After that, the bank is not going to repair items for you!
I know that's probably a long answer, but I hope it helps!
Real Estate Author and creator of edsforecast.com. I teach, commentate on National TV and forecast valuations for private and government entities. REO's, short sales and pre-foreclosures require personal devotion time and skills. All of which can eventually create reward. However in the present market crisis you need to be very smart. You will likely need to hold the property for a while. Flipping is no longer an easy option. So be sure to have positive cash flow from rent, or have money to back a longer term commitment. You can see forecast valuation for any USA property on my web site and plenty of reports to help you. All no charge. Enjoy. Ed Ross
Please remember though, the home is being sold in "As Is" condition.
As repairs to the home will be your responsibility after closing.
Also, it does take longer to hear back from the bank IF they will accept your offer than
a traditional contract. Usually the bank collects offers for a short time, then accepts the one that is best for them.
Foreclosure homes are a great deal. Since the owner could not pay the mortgage, the lender took possession of the property and is now tryingto sell it. Use a Realtor who is experienced with REO properties.