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If you're pursuing purchasing a foreclosed property, there is a lot you should know if you have never done it before. Yes, there are tons of great deals to be had in the market these days, but there are different stages of foreclosure and the more you know, the more you can protect yourself.
Pre-foreclosure.
This is when the homeowner still owns the property and knows there is potential for foreclosure. They're likely not current on their payments and are in danger of destroying their credit and losing any equity they have. Buying at this stage is tough - the sellers may be on a deadline and things have to happen quickly. The sellers will be extremely motivated and may work out a short sale if the bank allows and they can find a buyer fast enough.
The second option is to buy at auction.
This should be approached with caution - there is a lot of risk such as liens on the title and unknown repairs. Also, cash is typically required on hand at this stage if you beat the bank's bid and win the auction.
The last chance to get these great deals is post-foreclosure.
At this point, the home is known as REO - real estate owned property by a bank or lender. The bank won at the auction and is now selling the home to recoup as much money as possible - at least what is owed on the property. The bank will likely hire a local real estate agent to put it on the market. The longer the home is on the market, the more willing the bank is to work with you on selling price. Keep in mind, banks do not enjoy the business of owning real estate – they want to get rid of it as quickly as possible.
A few things to keep in mind when purchasing a foreclosed property:
Get a full approval from a mortgage lender who has verified your income and assets. This will give you more negotiating power.
Pick a zip code you are interested and do research on what homes are selling for and the recent trends with property values in that area.
Get an inspection done and make your offer contingent on satisfactory result from the inspection.
Determine potential repairs and their costs.
Remember you have the upper hand in negotiations with regards to the bank paying closing costs and making repairs.
To find foreclosures, you'll want to work with an experienced real estate agent who has access to local multiple listing services and can pinpoint the potential deals for you. Be cautious and patient in the process of buying a foreclosure. If done right, you will find a great home in which you may have some instant equity.
Agree there are different stages of foreclosure. Your definition of pre foreclosure barely touches the topic. As for home owners being extremely motivated not making payments and waiting for the inevitable to come. At that point are they living for free and not maintaining the property?
Destroying their credit? My opinion when a person is in financial trouble, should work on a priority list with the mortgage #1, bills and income #2, and then credit as #3. When a person is struggling to pay through bills, a credit score is totally off the table!. Own their own - a person can rebuilt their credit later in steps.
You didn't explain what happens in Non Judicial vs a Judicial State, adding if the state is recourse or non recourse. Also if deficiency judgements are allowed. This can determine if it is better to do a Short Sale or a Deed in Lieu. Just by doing a short sale "Will Not" postpone a foreclosure. A Deed In Lieu encompasses a Short sale, also includes an attempt for loan modification. According to the federal guidelines of the 2010 Frank Dodd act, that went into effect Jan 2014. Once a borrower has a full modification package, the lender cannot initiate a foreclosure sale date.
If there is more equity in a foreclosure - it is called a Flat Sale. This includes a Letter of Undertaking a written promise of intention that outlines the terms and conditions between seller and buy who are entering into a agreement. When there is less equity in a property -
When a Buyer is looking to purchase, one of the first questions that need to asked is who is the owner. Fannie/Freddy property values can be negotiated down to fair market value, just recently now require an appraisal. FHA short sales fair market value can be negotiated between 84 to 88% of the debt amount. Doing short sales with private owners are much easier.
In states requiring a property to be listed (auctioned) in a local paper or website. In my opinion buying a property through on auction would be the last place to purchase a home. A picture may say a 1000 words, what is the real story is behind the picture. The only way I would recommend purchasing is so is if they knew the history/family with the property.
Concerning home sales and negotiating. A buyer makes an offer, once the seller meets, get a Home Inspection. Using the results use for a second offer. Not sure what OP means by having the upper hand in negotiations, either accepting or walking away from a short sale? When the house is appraises, and thje appraisal under covers a problem. The cost of the repairs can be subtracted from the value, call cost to cure. For the buyer who is financing, the loan is determined by their credit score, DTI and LTV ratios. When they walk away from the table - the home is their's all kit-kat and cabtal, including future repairs.
As for real estate owned property by a bank or lender. They are not usually winning any property's from an action. Instead they inherit (take back) homes that are left to foreclosure. Agree banks do not enjoy the business of owning real estate, likewise banks are not in the business of foreclosing.
So am I correct that I can place an offer to the bank on a foreclosure with my offer dependant on inspection results? I thought I had to do my due diligence before an offer was made. I'm going to look at a property in which the bank foreclosed at $335K and has the house listed for $417K. From what I have seen in the pics it needs a lot of work on the inside updating etc.
The listing agent has a date in which all offers will be submitted and highest one receives. I need to go visit the property but just what I have seen the property would need about 80K-100K to make nice. Zillow has the property valued at something like $580K but from all the work I think I would offer $350K as that should cover banks costs.
I also assume I should do a title/ lien search to assure there are no outstanding liens against. Would appreciate any info or insights-thanks
If there are two offers and one has no inspection results clause and one does..... they will typically select the one with no inspection clause. As for your negotiating tactics...... banks will typically not discount that low. They would rather sit on the property for another year and drop the price $10k per month until it sells.
My advice? You should inspect it first, then make the offer.
If there are two offers and one has no inspection results clause and one does..... they will typically select the one with no inspection clause. As for your negotiating tactics...... banks will typically not discount that low. They would rather sit on the property for another year and drop the price $10k per month until it sells.
My advice? You should inspect it first, then make the offer.
Good Call 399083453...
When trying to negotiating and predict what a Bank is going to do, they usually pick to most profitable course - for them....
oneslip - it's up to the individual Bank, how you are going to make any offer. If you contact them first to inspect the interior, do this with a home inspector. The inspection report will give you an incite whether or not to go forward.
Yes you can do your own title/ lien search, why not have the title company doing your closing handle that. Plus getting cheap mortgage insurance protecting against any liens for previous owners. This can be a selling point, providing a free and clear title to future buyers...
Agree there are different stages of foreclosure. Your definition of pre foreclosure barely touches the topic. As for home owners being extremely motivated not making payments and waiting for the inevitable to come. At that point are they living for free and not maintaining the property?
Destroying their credit? My opinion when a person is in financial trouble, should work on a priority list with the mortgage #1, bills and income #2, and then credit as #3. When a person is struggling to pay through bills, a credit score is totally off the table!. Own their own - a person can rebuilt their credit later in steps.
You didn't explain what happens in Non Judicial vs a Judicial State, adding if the state is recourse or non recourse. Also if deficiency judgements are allowed. This can determine if it is better to do a Short Sale or a Deed in Lieu. Just by doing a short sale "Will Not" postpone a foreclosure. A Deed In Lieu encompasses a Short sale, also includes an attempt for loan modification. According to the federal guidelines of the 2010 Frank Dodd act, that went into effect Jan 2014. Once a borrower has a full modification package, the lender cannot initiate a foreclosure sale date.
If there is more equity in a foreclosure - it is called a Flat Sale. This includes a Letter of Undertaking a written promise of intention that outlines the terms and conditions between seller and buy who are entering into a agreement. When there is less equity in a property -
When a Buyer is looking to purchase, one of the first questions that need to asked is who is the owner. Fannie/Freddy property values can be negotiated down to fair market value, just recently now require an appraisal. FHA short sales fair market value can be negotiated between 84 to 88% of the debt amount. Doing short sales with private owners are much easier.
In states requiring a property to be listed (auctioned) in a local paper or website. In my opinion buying a property through on auction would be the last place to purchase a home. A picture may say a 1000 words, what is the real story is behind the picture. The only way I would recommend purchasing is so is if they knew the history/family with the property.
Concerning home sales and negotiating. A buyer makes an offer, once the seller meets, get a Home Inspection. Using the results use for a second offer. Not sure what OP means by having the upper hand in negotiations, either accepting or walking away from a short sale? When the house is appraises, and thje appraisal under covers a problem. The cost of the repairs can be subtracted from the value, call cost to cure. For the buyer who is financing, the loan is determined by their credit score, DTI and LTV ratios. When they walk away from the table - the home is their's all kit-kat and cabtal, including future repairs.
As for real estate owned property by a bank or lender. They are not usually winning any property's from an action. Instead they inherit (take back) homes that are left to foreclosure. Agree banks do not enjoy the business of owning real estate, likewise banks are not in the business of foreclosing.
Have to disagree about the tons of great deals out there.
I have bought REO's as investments and the great deals are few and far between. TV makes everyone think there are tons of good ones. Don't believe it.
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I am not familiar with that expression
