How does one buy a foreclosure? (bank owned, short sale, real estate)

[AAVC]

We moved to NJ over the summer due to a job transfer and are renting a place while looking to buy a house. Someone asked me why don't we buy a foreclosure, there are so many of them... Does any one have any insight into how to go about that? The town we are interested in is Warren. We have excellent credit and sold our previous home already, so none of that would get in the way...

Thank you for any tips you may have.

[Bill Keegan]

Originally Posted by AAVC

We moved to NJ over the summer due to a job transfer and are renting a place while looking to buy a house. Someone asked me why don't we buy a foreclosure, there are so many of them... Does any one have any insight into how to go about that? The town we are interested in is Warren. We have excellent credit and sold our previous home already, so none of that would get in the way...

Thank you for any tips you may have.

First, you need to be clear about what you want when you say "a foreclosure."

When the bank files the papers to take posession because the homeowner hasn't paid their mortgage, it begins a foreclosure process. There are many twists & turns along that foreclosure path, but, if the mortgage doesn't get paid or settled in some way, it eventually leads to a Sheriffs auction of the property. At that auction, anyone who wants to may bid on the property, including the bank that is owed the mortgage money. The bank will bid up to some number they set internally. Sometimes that number is below what they are owed by a good bit, other times it isn't below it at all. If no one is willing to bid higher than the banks number, the bank takes posession. The property them becomes what is often referred to as an "REO" or Real Estate Owned by the bank. Some people call these foreclosures too.

Did you want to look at buying a property at the sheriffs auction, or an REO from a bank?

[todd72173]

Foreclosures are also government owned too (HUD). Basically a foreclosure is when the owner defaulted on their loan and either the bank or government (HUD) now owns it.

To find foreclosures, easiest is to check yahoo or aol real estate section for foreclosures. Or you can go to the sheriff's auction but that is not recommended for amatuers.

[AAVC]

Originally Posted by Bill Keegan

First, you need to be clear about what you want when you say "a foreclosure."

When the bank files the papers to take posession because the homeowner hasn't paid their mortgage, it begins a foreclosure process. There are many twists & turns along that foreclosure path, but, if the mortgage doesn't get paid or settled in some way, it eventually leads to a Sheriffs auction of the property. At that auction, anyone who wants to may bid on the property, including the bank that is owed the mortgage money. The bank will bid up to some number they set internally. Sometimes that number is below what they are owed by a good bit, other times it isn't below it at all. If no one is willing to bid higher than the banks number, the bank takes posession. The property them becomes what is often referred to as an "REO" or Real Estate Owned by the bank. Some people call these foreclosures too.

Did you want to look at buying a property at the sheriffs auction, or an REO from a bank?

I understand... To be honest I am not sure which one of the two options would be more favorable to us - does it make a difference? I would be open to both options. The key for us is to take advantage of the downturn in the market and get a property that is potentially below its actual value. What are the chances of that?

[AAVC]

Originally Posted by todd72173

Foreclosures are also government owned too (HUD). Basically a foreclosure is when the owner defaulted on their loan and either the bank or government (HUD) now owns it.

To find foreclosures, easiest is to check yahoo or aol real estate section for foreclosures. Or you can go to the sheriff's auction but that is not recommended for amatuers.

I've heard that one way to do it is to be connected with a real estate agent that works with foreclosures. Do you know anything about that?

[Bill Keegan]

Originally Posted by AAVC

I understand... To be honest I am not sure which one of the two options would be more favorable to us - does it make a difference? I would be open to both options. The key for us is to take advantage of the downturn in the market and get a property that is potentially below its actual value. What are the chances of that?

There are a few differences in the procedures.
When you buy at the sheriffs auction;
- you are usually unable to get into the property to do any sort of inspections.
- you are potentially bidding against investors & other professionals who, theoretically, have more knowledge & resources.
- you have to pay 20% of the purchase price immediately upon winning the auction. The remainder must be paid within 30 days. These 2 facts limit your ability to get a mortgage loan. Of course, it can be done, but it's a bit tougher.
- you are purchasing the property subject to any additional liens that may be present. You can do an advance title search to find out what these are, but you do need to be aware of them.
- you may be able to get a "good deal" because you are taking the above risks.
When buying a bank owned property;
- you are competing with a larger pool of buyers for the house, as it is marketed and sold in the more traditional manner.
- you have greater flexibility in purchase money options. You might want a mortgage with less than 20% down, or perhaps a renovation loan product like a 203(k).
- you are purchasing a property with a clean title, as the bank will USUALLY clear all liens before putting the property on the market.
- you may end up having to pay closer to the tru market value of the property, both because the bank will be trying to recover the costs associated with taking ownership and marketing it, and because that marketing will expose the property to that much wider buyer pool than at a foreclosure auction.

In both cases you can still "get a good deal." The key is to do you homework, research the properties as much as you can, and make smart choices, not emotional ones.

[Bill Keegan]

Originally Posted by AAVC

I've heard that one way to do it is to be connected with a real estate agent that works with foreclosures. Do you know anything about that?

I happen to agree with that statement, espscially if one is a novice, as it appears you are.
In the interest of full disclosure, some would say the title below my name up there on the left biases my opinion. Perhaps, but that doesn't make it less correct.

[JerseyG]

Originally Posted by AAVC

We moved to NJ over the summer due to a job transfer and are renting a place while looking to buy a house. Someone asked me why don't we buy a foreclosure, there are so many of them... Does any one have any insight into how to go about that? The town we are interested in is Warren. We have excellent credit and sold our previous home already, so none of that would get in the way...

Thank you for any tips you may have.

I agree with Bill Keegan.

In my experience of purchasing REO's/foreclosures the property is typically AS IS. 9 times out of 10, if a homeowner is in default on their home loans, keeping the house up is not a priority. Especially on an REO if the house has been "winterized" until the bank has gotten the home back on the market. You'd be surprised (I stilll am) how much damage can occur when a home sits, neglected for 6 -12 months.

I don't know how much has changed in the past two years but when I've looked at REO's they've tended to be marketed at FMV or just a tiny little bit under. No consideration for the shape the home is in and the banks aren't always that willing to negotiate asking price. Maybe things have changed since, and that would be a good thing especially if the purpose to purchase is to buy, fix up and live in the home.

You might want to look into pre-foreclosures?

[Hengist]

Sound similar to current repossession mania in Britain at the moment. Everyone wants a repo, it must be a repo, even if it is in poor condition and priced the same as any other house. How much extra are you willing to pay to get one?

[icibiu]

If you want to look into a foreclosure jsut be aware that the process usually takes longer than a regular sale. My cousin just bought one and got a great deal BUT they put thier first offer on the house in the end of June and just closed two weeks ago. My hubby and I bought a regular sale we put in our initial offer the last week in August and closed on Friday. Ours took a little long because we had the seller make some major repairs after inspection. My cousin on the other hand 1) could not get the bank to fix a single thing 2) Had a hard time even getting the inspection done because the bank didn't winterize the house until March (stupid!!) they had 11 burst pipes and couldn't turn the furnace on to see if it even worked. Getting the bank to fix the pipes was impossible and they ended up having to pay for it themselves behind the banks back. Like someone else said A LOT of damage can happen to an empty house in the 1 or 1 & 1/2 years most foreclosures are empty. That said they got an AMAZING deal on the house, but he is very very very handy so all the extra work the house needs he can do himself (i'm not talking paint brushes and screwdirvers here, I mean hardcore plumbing and electrical type stuff).

I would say look into foreclosures but don't cross regular sales of your list. Regular old sales need to compete with foreclosure and short sale prices so you can find a good deal there too (we got a GREAT price on our home!)

Best of luck to you! And if you qualify for the the tax credit I would say start looking now, especially if you go the foreclosure route.