Tips For Buying A Foreclosed Home
Homebuyers in the market for a deal on their dream home need two
things: lots of patience and the stomach to do battle with investors.
Any home that is in a decent area and priced right is facing keen
competition in today's market.
Homebuyers in the market for a foreclosure need those qualities
tenfold. Buying a foreclosure is a lengthy process, and, although most
investors prefer pre-foreclosure sales and auctions, you will face your
share of competition for bank-owned homes.
Let's take a look at some foreclosure-buying options and how to participate.
Buying a Foreclosure at Auction
Homes that are sold at auction, typically carried out at the county
courthouse, are those that homeowners have lost because they failed to
bring the
mortgage current during the reinstatement period.
The lender's representative, known as the trustee, will be on hand to
receive the money from the winning bidder, if there is one. The opening
bid is typically equal to the loan balance, trustee's fees, accrued
interest and other costs incurred by the lender during the foreclosure
process.
Can you get a bargain at auction? That depends on how much the
homeowner owed before defaulting on the loan. The opening bid must be
met or the trustee purchases the property and it then becomes an REO, or
"real estate owned" by the lender.
You may have seen
foreclosure auction shows on TV. If so, you know it
isn't the place for a novice to get a good deal. Most of the bidders
are highly experienced flippers and investors offering up fierce
competition.
You will also not be able to view the inside of the home or perform
inspections. Plus, if you're the winning bidder, you may have to evict
the current occupants. Depending on the state in which you live,
eviction may be costly and time-consuming.
Finally, many
foreclosures have additional liens against them, which
you will take on if you purchase the property. Recorded liens are public
information; you can search for them at the county clerk's office, the
county recorder or the assessor's office. But not all liens are
recorded.
One way to ensure you're protected is by purchasing an owner's title insurance policy. Contact a Realtor to help answer any questions.
Buying an REO
Purchasing a bank-owned property is much easier than
buying a home at auction and much like a conventional purchase.
You'll need a loan
preapproval letter from your lender, unless you're paying cash, and the services of a
real estate agent.
Most REO properties are vacant and somewhat cleaned up. Although the
bank won't supply you with property disclosures as sellers in a
conventional transaction are required to, you will be allowed time for
inspections.
Many
experienced REO buyers perform extreme due diligence, such as
checking the city planning office for permits that may be on file for
any work the previous owner performed. Have anything that looks the
slightest bit suspicious inspected, from the roof to the foundation.
Your
buyer's agent should be able to assist you in learning as much
as possible about the home's history. And, since real estate brokers are
required to hold on to transaction files for a number of years (varying
according to state), if the home sold in the past few years, your agent
may be able to track down a past disclosure.
Banks typically don't pay for repairs to the property, so you'll need
to take on that expense. Ultimately, although it may seem that you're
getting a bargain-priced home, once all is said and done, it may be
worth it to purchase another home in turnkey condition.
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