Table of contents:
What To Know When Buying A Foreclosed Home – Buying a home in foreclosure can be a great way to get a home below market value, but the process isn’t as simple as a traditional home sale, and there are some pitfalls you should be aware of. Here’s what you need to know.
A foreclosed home is one that now belongs to the bank instead of the owner. When the owner defaults on the mortgage, the bank can repossess the house just like it would repossess a car. This allows the bank to sell the house and recover some of the money they lost when the owner stopped paying. The process varies from country to country and can take anywhere from a few months to years.
What To Know When Buying A Foreclosed Home
There are two types of foreclosures: bank owned and real estate owned. In both cases, the bank owns the house, but the type of foreclosure depends on the foreclosure stage of the house.
What You Need To Know Before Buying A Foreclosed Home
The house is considered a bank-owned foreclosure in the early stages of foreclosure. In the early stages of foreclosure, the homeowner stopped making payments and the bank took action to remove them from the property. It is at this stage that the bank will try to sell the house at a public auction.
If the property is not sold at auction, it is still owned by the bank, but can now be sold through an estate agent, hence the term owned property.
You can find foreclosed properties by searching real estate companies online or more directly through Fannie Mae’s HomePath.com. More and more lenders are using real estate agents to sell their foreclosed properties, so your chosen agent could help.
Have more questions about buying a foreclosure? We would be happy to help you! Contact us at 571-234-5589 or [email protected] . For lead generation videos, Facebook tips, practical real estate tools and more, be sure to check out our YouTube channel. Posted by Jeff Knox on Tuesday, December 6, 2016 at 1:27 pm Jeff Knox / December 6, 2016 Comment
Buying A Foreclosed Home: Where To Search, How To Buy And What To Watch Out For
Many buyers are drawn to the foreclosed listing and the thought of buying a home well below market value. In theory, it’s wonderful. In reality, there are things buyers need to know before going down the foreclosure buying route. To be honest, very, very few people find a foreclosure they want to buy or end up actually buying a foreclosure.
A general rule to remember is this – the more the market is a seller’s market, the harder it will be to find foreclosure. In a seller’s market, homes are easier to sell and generally, if a homeowner is facing foreclosure, they can simply sell the home in lieu of foreclosure. The opposite is true in a buyer’s market – in a buyer’s market, homes tend to sit on the market longer and are not as easy for a seller facing foreclosure.
In a buyer’s market, prices are falling, which could put the seller “underwater” on their credit…meaning the seller may owe more on the mortgage than they can get on the home. However, finding foreclosures is much easier in a buyer’s market. Keep these things in mind when shopping for foreclosures.
While I am writing this article with the idea of a hyperlocal focus on Dallas, Texas, most of the content within the article applies to all markets in general. Most REALTORS® who have dealt with foreclosures will give you the same advice as in this article.
What Is Foreclosure In Real Estate: Buying A Foreclosed Home In Indiana
Foreclosure means that the bank has foreclosed on the owner, kicked the owner out of the house, and can now put the house on the market and sell it without the former owner’s permission or consent. The bank now owns the house. In a foreclosure situation, you or your REALTOR® will be dealing with a listing agent representing the bank. In foreclosure, negotiations are not as fast as a normal sale, but they are not painfully slow either.
Since this is exclusively the bank’s job, their responses may be delayed. For example, banks are not available on weekends. So if you submit a foreclosure offer on Friday, don’t expect to hear anything until next week. Unlike most sellers, banks are not ‘excited’ when they receive an offer on one of their bank-owned homes. Remember, the bank is not emotionally attached to the house and the home is simply considered a liability on their books. Banks are responding, but not as quickly as most customers would like.
A short sale is when the current owner owes more on the home than the market says it is worth. For example, an owner facing a short sale may owe $200,000 on the mortgage note, but can only sell the home for $180,000. In this example, the owner must try to negotiate with the lender to sell the house for less than what is owed. This process is painfully slow.
Unless, as a customer, you are willing to invest a lot of time (perhaps months) waiting for answers from the bank, this route is not worth it. Additionally, the vast majority of short sales do not close. So you can invest months in a home that won’t even close in the end. I always advise my buyer clients not to engage in short selling.
Buying A Foreclosed Property? Avoid These Mistakes!
If you happen to find that needle in the haystack of a foreclosure you want to buy, keep in mind that most foreclosures are in very poor condition.
I would be willing to say with confidence that about 99% of foreclosed homes are in very poor condition. Customers will find all kinds of items and appliances that are missing or damaged beyond repair. The most common problems buyers face in foreclosed homes are the following: the carpet needs to be replaced; lighting fixtures are missing or broken; broken floor tiles; interior and exterior of the house to be painted; interior and exterior doors that need to be replaced or repaired; and the landscape in serious disarray.
I have personally seen the attached items removed from a foreclosed home that I can only assume the owner sold for cash. I saw the light fixtures removed; media rooms stripped bare; built-in refrigerators are missing;
If the homeowner can’t afford to pay the mortgage, they can’t afford to maintain the home either. Additionally, once an owner faces the reality of foreclosure, they are much less likely to maintain the home.
How To Buy Foreclosures In 5 Steps · Distressed Pro
A study by the National Association of Realtors shows that respondents to their questions actually cited poor foreclosure conditions as one of the top reasons for not buying.
Thirty-five percent of recent buyers considered buying a foreclosed home (down from 39 percent last year), but the main reason they ultimately didn’t buy a foreclosed property was the inability to find the right home. Other reasons for not buying a foreclosed home included the overly difficult or complex process and poor condition of the home. This year, the largest group that was thinking about buying an apartment under foreclosure was first time buyers.
With most home sales, the buyer has an inspection of the home. After the home inspection, the buyer and their agent will usually compile a list of desired repairs that the seller needs to make before closing. Sometimes the list includes minor issues. Sometimes the repair list includes major problems. And sometimes, the list includes both major and minor issues. Generally, in the normal course of selling a home, the buyer and seller will negotiate what repairs the seller will make or pay for before closing.
Not. Absolutely not. Banks will waive repairs to anything found during a home inspection. Only if the repair is a major problem—one that every buyer would want fixed—will the bank even entertain footing the bill for a problem with the home.
Buying A Foreclosure? Here’s What You Need To Know
Examples of repairs that banks MAY accept are: serious foundation problems; serious problems with water supply; serious electrical problems; serious problems with the roof; serious problems with the pool; and severe HVAC problems. Other than these major issues, banks generally will not fix any items prior to closing. For the most part, you buy a house “as is” when you buy a foreclosure.
In Texas, and I assume in most states, banks are not required to complete a Seller’s Declaration. Since the lender has never actually been in the apartment, they are not required to fill out an affidavit intended to inform potential buyers of any problems with the home. Texas law requires normal home sellers to fill out a declaration when selling a home.
99% of sellers are very honest in their disclosures, meaning the buyer will be informed (in writing) of anything the seller knows could be a problem with the home. Without this disclosure, buyers purchase a property without the “safety net” of knowing all the potential problems with the property.
I usually don’t advise buying a foreclosure like I would a short sale (for reasons
