Has Anyone Purchased a Home in Foreclosure?

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  1. Hello Everyone!:smile:

    I am looking to purchase a home in the near future.
    It seems like most of the homes(about 90% of the for sale listings) in my area are either short sales or foreclosures. I am nervous about the process, repercussions and don't even know what to offer off of the asking prices with these homes.

    Yes, I am working with a realtor. But was wondering if anyone could share their experiences and advice if they have gone through this process.
     
  2. We bought a home in foreclosure last December. We had looked at several foreclosues and a lot of traditional sale homes, too.
    The bank had the property winterized, which was good. But, they had turned off the electric. The sump pump doesn't work without electricity, so the basement had about 2 feet of water in it. It was cleaned up when we saw it, but you could see the water marks on the walls, and sediment of the floor. We had to get a new furnace and hot water heater, which was not a big deal considering the low price of the home. Other than those two issues, it was almost move in ready. Just needed a good cleaning and paint.
    Some foreclosures have a lot of damage and things missing (central ac unit!!, appliances that were supposed to be included, light fixtures, garage door openers, cabinet knobs, ect), some don't. The banks usually do an "as is" sale, which means they normally won't repair/replace things. I think having a good home inspector makes a huge difference. They find issues that could easily be missed. Also, our realtor, and real estate attorney were super helpful. You can find a really good deal, but you have to be careful and closely inspect the property. The asking price was super reasonable in our case, so I offered their asking price and asked them to cover closing costs. I made one offer on a short sale and it took almost three months to hear back from the bank on that one. They decided to foreclose on it, rather than do a shortsale. From what I've heard from my realtor, short sales are frustrating and not many make it to closing.
     
  3. Are you comfortable with your agent?
    Make sure you understand the redemption period (if there is one in your state), this is the time the homeowner has to redeem the home and get it back. Sometimes there is overlap and the sale can fall through if it commences within this time period, which varies by state.

    You also will need to make certain, through title insurance and the escrow process that you are getting the title free and clear of any mechanics (contractors) liens or other debt apart from what the previous owner owed the lender. Even unpaid homeowners fees can surface once the sale is underway.

    You need to be 100% confident in your agent because this is a little more complex than a regular sale, KWIM. Condition of the home and inspection timetables are really important because these homes are often vacant for a long time.

    Laws vary by state and it depends on what type of foreclosure it is--judicial or a nonjudicial foreclosure.

    The more you know about the process the better is it is for you as a buyer, KWIM. Good luck, I hope you find a good deal.
     
  4. Thank you Melissa!
    It seems that even the homes that appear to be a traditional sale end up being a short sale or foreclosure once we go to visit the home.

    The realtor we have is great.

    I was curious about the process because it now seems that homes that were out of our price range are now obtainable due to the deals being made with these sale.

    Some homes have been reduced by so much that it is making us reconsider the size of home we can buy since the more expensive homes are now very close in price to homes that we originally thought was affordable for our budget.
     

  5. Thank you Cobalt! We did not set out to look for foreclosure properties. It is just that most of the properties we have interest in are bank owned, pre foreclosure or short sale. There are also some very motivated owners.

    I think the biggest shock has been that homes we could never afford are in our reach due to these factors. We rent in a very expensive town and would like to stay here as DD attends school here. So this has piqued our interest to go for a better home since the prices are a little more than our original budget which was a starter home in the neighborhood.
     

  6. Well, a foreclosure or short sale can be a great way to get into the market, but you must have all the information. Particularly if the owner is still in the time period when they can redeem the foreclosure, you can imagine how sticky that could be, though it is not something that happens all the time, and not all foreclosures/states have a redemption period.

    If you have a good agent and everything is in order you should be fine, but you need to do your homework. A motivated seller is great, too, particularly if you get some of the fees paid out of the owners proceeds, etc.

    It will be well worth your time and effort to pursue this, particularly if the home is in a great neighborhood and you can get it for under value., even if you have to do cosmetic things or minor repairs.
     
  7. Does this apply to properties that are bank owned as well?
     
  8. ^^ I believe once the bank has the title, the mortgagor (original owner) is out of the picture. however even on a bank owned property there could still be outstanding things like homeowners fees and things that may need to be paid before closing, even mechanics liens (which are placed by the contractors if they are not paid and are legally binding on the property, secondary to the bank). These could be due at closing too. The title insurance company will check the title before insuring it, but it is a good idea to go over any possible clouds on the title with the realtor as well.

    Mechanics liens are public record, but outstanding homeowners fees and things like road maintenance fees, or even assessments for things like water mains and such can be hanging there if the owner has had to walk away from the property, KWIM. You want to make sure you dont have any surprises when it is time to come up with cash at closing.

    Usually these things are disclosed, and anything that "attaches" to the title/deed to the property is public record...such as secondary mortgages or mechanics liens. The title company will search this before insuring the title, so its not like you have to do it, but you should educate yourself on what is possibly out there.

    Homeowners fees may not be attached to the deed, so you need to make sure the bank, as owner of the property, isnt holding on to a bill for such fees that you are supposed to pay on closing --- you dont want to get title, keys and a bill for road maintenance, KWIM. That happens where I live sometimes because there are some private road/utility services for some developments.

    NONE of these things are dealbreakers, they are just things to be aware of. Your realtor wants a clean, hassle free escrow as much as you do, so h/she is likely to be aware of any stumbling blocks that could slow things down. but you need to be sure, too, KWIM.

    Lets say the homeowner walked away from the property owing the bank and the community association as well. Well, the community association is going to want to be paid back fees on the property, and you dont want to get a letter from them as soon as the home is conveyed to you (which is public record). You want everything handled and to your satisfacation.

    Just have a sit down with the realtor, maybe after doing some googling so you are aware of the different foreclosure types and the process.
     
  9. Cobalt, you are amazing! Thank you so much for all of your advice.
     
  10. I am working in this field and want to add something to the wonderful explanation from CB.

    Remember that as a buyer you also need to be prepared for negotiations. Once you make an offer, there will nearly always be some back and forth with the bank (in an REO/foreclosure). Fortunately, this does not take too long.

    On the other hand, a short sale, or bankruptcy short sale will take much longer. The quality of the bank's appraiser is very important, many come out to appraise and have completely outlandish reports, giving the bank an inflated value. Be prepared to challenge an appraisal, ask your agent to come up with more comparable properties to illustrate this, and then be prepared to give a little. When there are multiple lien holders, it will take even longer, especially if the first gets paid in full.

    Short sales can take up to 4-5 month to close, some longer. I have one now that I've been working on for 9 months. The banks move at their own pace, are incredibly inefficient and lender approval cannot be rushed. It is frustrating, yes, but if you can commit to the time, you can get amazing deals.
     
  11. Thank you so much for your input!

    If I am asking close to their asking price do you still think I will need to negotiate. I am not sure if it is worth it to totally low ball the bank and leave room for negotiations or offer really close to my max point and be prepared to walk away. I have never had to deal with this process so I don't want to over pay but also don't want to end up with no home due to a low ball offer.
     
  12. You really need to talk to your agent about that. For example, a house I worked on was listed at $375K, then reduced to $350K. An offer came in for $340K and I submitted it to the bank. It was accepted, but the realtor commissions were reduced significantly in their counter offer. In this case, the borrower owed the bank, $450K on the loan, and I was frankly surprised it was accepted. The house had been for sale on and off for 3 years.

    In another, the list price was $439K, and an offer came in at $400K. The offer was submitted, and then the bank went out to to the appraisal, which came back at $475K. The appraiser said that a room in an unfinished basement was a third bedroom. That was nuts. So the challenge and negotiations are on!

    All banks are different. But your agent should be able to help you with the offer, especially if it is priced right in the market. In my market, homes are going at list price, and up to 10% lower.

    If you can, it is best to do the inspection at the beginning, so you know what you are getting into. But that costs the buyer money (here ~$450). It is a risk the buyer takes, if the deal falls through, you don't get that money back.

    Buying these types of properties require commitment, and flexibility on the buyer's part. Banks have a certain amount they will not consider, but you may not learn that until your are 60 days into it. There are some fabulous deals out there to be had.
     
  13. Oh, one other thing. In a short sale, the seller has no money, and that is the reason they are selling. This means they often have no money to fix things. And the longer the house is on the market, the longer the period of neglect. Keep this in mind in your price. And this is why I said if you can risk the money, do the inspection sooner than later.

    In bank owned properties, many banks will do some property maintenance, cut grass, replace carpet, etc, to make the property more attractive to buyers. But even if it looks pretty, it may not be a better deal.

    Keep the possibilities in mind. Lots of people these days want homes that are in a move right in condition with top of the line appliances, luxury upgrades, and professional landscaping. Many short sales and foreclosures have to be looked at a little differently - with an eye to the future.
     
  14. Thank you. We put in an offer for a short sale. They took a $490k loan out on the home in 2006. They just dropped the asking price significantly from $380 to $229k. We took the advice of our realtor and offered $210k. Surprisingly, the house is immaculate even though they turned every liveable space into a bedroom.

    We are so nervous. I don't want to lose this house. Our realtor thinks we have a good shot since we are the first offer in and he said the banks like to deal with one offer at a time.

    We are hoping that if another offer comes through, they will give us the chance to bid higher and not just reject our offer.

    What has been your experince in dealing with multiple offers on a property with the bank?
     
  15. Keep in mind that short sales take FOREVER. Or what seems like forever. If you are impatient, you would be better off looking at traditional sales. It can take as little as 3 months to close on a short sale, or much much longer. It all depends. Talk to your agent about their success rate with closing short sales. Some agents can close all their short sales, some never do. You (obviously) want one of the former.