We are currently renting a home that is in default. What can you tell me about purchasing a home in default, especially for first-time buyers. Thanks!

Asked by Sara85, Everett, WA Wed Aug 14, 2013

We would really like to stay in this home but we have never purchased a home before and we have no money saved for a down payment. What are our options...if any? Thank you.

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Saihou Dramm…, Agent, Shoreline, WA
Mon Oct 28, 2013
Hello Sara,

It sounds like you're trapped in a situation of not your own doing. You may not be able to stay at that current location, but there are at least seven $0 down payment programs available to you as a first time buyer. go to http://www.wshfc.org. check out the programs there and call me at (206)291-4450. I do teach home buyer seminars. You do have several options to get your own house.

Good Luck to you!!!

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Christine Mo…, Agent, Mukilteo, WA
Sat Aug 17, 2013
You have received a lot of advise and a lot of it is incorrect here is the law as it stands for tenants rights and evictions after foreclosure:

New federal as well as state laws protect tenants when the landlord’s property is foreclosed upon.

New federal law.

Under the Protecting Tenants at Foreclosure Act of 2009 the purchaser at foreclosure takes the property subject to any unexpired lease. The law also requires the foreclosure auction purchaser to give notice to vacate to any month-to-month tenant. The notice must be served at least ninety days prior to its effective date. The law expires at the end of 2012.

New Washington law.

Under a new Washington law the purchaser is required to give a statutory notice form to any occupants. The purchaser is required to give at least 60 days notice to terminate the possession of any tenant. The purchaser may then bring an unlawful detainer action. The new state law does not expire.

Most banks will offer what they call a cash for keys exchange, this is where you agree to vacate the property and leave it in a broom swept condition, all utilities current and in exchange they will pay relocation costs. You will be required to provide a W9 as all monies over 600 are reported to the IRS. As far as buying the home in default 95% of the lenders that foreclose will require all parties including tenants to vacate prior to entertaining any offers. Bottom line regardless of what the property is foreclosed upon what is the market value.

If you decide not to entertain the cash for keys arrangement after the trustee sale the new owner/or bank will begin the eviction process on whoever is in the house, if there is a lease in place you will be paying those rents to the new owner.

If you are looking in the North End or Snohomish County the USDA loan program is a great first time home buyer program as it is a zero down payment loan and the seller can pay your closing costs.
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Dan Tabit, Agent, Issaquah, WA
Sat Aug 17, 2013
I want to add an additional thought to all that is below. If you have an interest in home ownership, the temptation of buying the place you are in is natural. My advice is before you make that choice, assuming it becomes available, consider some additional options.
Step one is to meet with a lender to see what you qualify for and learn about the programs available. The next step would be to meet with a great local Real Estate Broker and check out some other homes in your price range. While moving is no fun, you don't want to miss a really great opportunity that may be out there.
After you are fully informed of your options, you'll be in a much better place to decide where you want to live for the next several years. Best of luck.
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Jirius Isaac, Agent, Kenmore, WA
Thu Aug 15, 2013
you already have a lot of good advice below, so no reason to repeat it. If you want to see if you qualify to buy a home, I can help you with that as a loan originator. Feel free to contact me directly.

Good luck to you in any case,
Jirius Isaac
Isaac Real Estate Team
Champions Real Estate Services
TriStar Finance #MLO-107799
Office: 425-483-6849 Cell: 206-841-9976
Winner of Seattle Magazines 5 Star
Real Estate Agent Best in Client Satisfaction Award
Mortgage Loan Originator Best in Client Satisfaction
Web Reference:  http://TriStarFinance.com
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Kary Krismer, Agent, Renton, WA
Thu Aug 15, 2013
Simon wrote: "As to your security in living in the home; you do not have to buy it to get security. A lease is a legally binding agreement that passes to the next owner after a sale or foreclosure. A new owner cannot just nullify a lease. If you are in, lets say a 2 year lease with 2 renewal options - guess what? As long as you keep up your end of the agreement, your residency is secure. "

This is incorrect. Agents should not be giving legal advice, particularly agents from other states who do not understand Washington law.

The right of a tenant to stay in a property after foreclosure is a complicated issue, affected by the timing of events and state and federal legislation (the federal legislation was linked by Simon). But if the quoted material were correct, there would be no need for the state and federal legislation which was passed after 2007/

Sara85's question was directed more toward buying the property, but I was probably remiss in not suggesting that she consult with an attorney (or tenant's union) about her rights because at some point issues will arise about who to pay rent to and recovery of any deposits.
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Simon Campbe…, Agent, Miami Beach, FL
Wed Aug 14, 2013
Okay, first you need to know if you will qualify to buy the home. VA and HomePath (Fannie Mae Foreclosed Properties - which I do not believe this is yet) have zero down programs. There are also some first home buyer programs and grants that you may qualify for.

You will need to have a credit score of at least 580 to qualify. You will also need to have a debt to income ratio of a maximum of 33%. This ratio will include your future mortgage payment, taxes, insurance and private mortgage insurance.

Your best bet is to go talk to a lender to see if you can pre-qualify for a loan - this will help immensely.

Second, since the home is in default, you have two options. Option #1 is to pay off the balance on the mortgage including all late fees, penalties and past interest. If you are unable or unwilling to do that, then you will have to work with your landlord AND their lender to have a short sale approved. This can be a long drawn out process so be prepared to be patient.

As to your security in living in the home; you do not have to buy it to get security. A lease is a legally binding agreement that passes to the next owner after a sale or foreclosure. A new owner cannot just nullify a lease. If you are in, lets say a 2 year lease with 2 renewal options - guess what? As long as you keep up your end of the agreement, your residency is secure.

There is an exception, which you can read about here: http://realestate.msn.com/article.aspx?cp-documentid=22789901
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John Speer, Agent, Everett, WA
Wed Aug 14, 2013
Obviously, since the property is in default, the rent payments you've been making have not been used to make the mortgage payments. It's important to understand your legal rights as the property and the owner(s) go through the foreclosure process. I strongly recommend that you seek legal counsel as only lawyers are licensed to properly advise you. Be sure to discuss with the lawyer how much time the foreclosing entity must give you to vacate the property after foreclosure. Also discuss the "Cash for Keys" programs that may provide the occupier of the home (even the tenant may be eligible) a significant cash payment to leave the home in good condition. It may be possible for you to purchase the home, but the seller may owe more than they are likely to get for the home and the resulting "short sale" would need to be approved by the mortgage lien-holders. Keep in mind though that this usually takes many months and it's not uncommon for the property to be foreclosed upon while you are in contract to purchase the property, leaving you with no recourse. After foreclosure, it could likely take several months before the bank-owned property is put on the market for sale. and you'll be competing with other buyers.

Hopefully your landlord is seeking legal counsel to understand their rights too. Sometimes they can stall the foreclosure process while they work in good faith with the bank to restructure their loan, or if that's not possible, get the lien-holder(s) to preapprove a short sale. That could open the door for you to make a formal purchase offer that would need to be accepted by the landlord and lien-holder(s) in a timely manner.

Licensed real estate brokers, can only complete and negotiate written agreements and advise you about the process for selling or purchasing the home. They can also negotiate short sales with the lien-holders, but often are not properly trained or equipped to do so.

A mortgage loan officer can help you to understand the loan programs that are available to you. There are some ways the lender can reduce your down-payment and closing costs significantly.

This is just an overview, so start coordinating with the right people and you may be able to efficiently and effectively accomplish your goals.
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Kary Krismer, Agent, Renton, WA
Wed Aug 14, 2013
There are some zero down loan programs, most notably VA loans and a few state programs. Google Rhonda Porter (mortgageporter.com) for information on the state programs. But even assuming you can qualify, you'd need the bank to agree to sell to you, either as a short sale before the foreclosure or directly after the foreclosure. And the latter would require that no third party buy at the foreclosure sale, which is probably less and less likely lately.

I would take a step back though. If you don't have money saved for a down payment, are you going to be able to afford a house? It may be true that the principal, interest and taxes on a house might be attractively low, but there are also maintenance and other expenses. So you might want to consider how the transaction will affect your current lifestyle, or if you can even make modifications to your spending to be able to afford home ownership. The last thing you want is to end up facing foreclosure yourself.
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Rob Merhaut, Agent, Bellingham, WA
Wed Aug 14, 2013
I can help....feel free to call me. I have been through this before. You or your agent can work directly with the seller...and their bank.
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MY HOUSE is currently foreclosed I hear about Cash for Keys I need more information about this program ddavis1942@yahoo.com
Flag Thu Oct 17, 2013
MY HOUSE is currently foreclosed I hear about Cash for Keys I need more information about this program ddavis1942@yahoo.com
Flag Thu Oct 17, 2013
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