With the staggering amount of foreclosures in recent years, you may have never thought before of purchasing a bank-owned home but now may be the right time to do some reconsideration. It is important to understand how the foreclosure process works and whether or not a foreclosed property is the right one for you.
What Kind of Properties Are Out There?
With foreclosure sales, a bank will attempt to sell a home through an auction or by advertising in the real estate section of the paper. The sale price typically involves the amount left outstanding on the loan, any interest charges plus any costs associated with the foreclosure, including attorney fees.
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A bank-owned foreclosure commonly known as an REO, or real estate owned property is the label the property receives after it fails to sell. Once a homeowner defaults on a mortgage loan, the lender will start a foreclosure action against the homeowner. In the event the property goes to auction but doesn’t sell, it goes back to the mortgage lender.
Two Ways to Buy A Foreclosure Property
A bank-owned foreclosure property may sound like a perfect way to save a lot of money on buying a home but there are a lot of things to think about before moving forward on a bank-owned property. Here are some things you need to know about buying a foreclosed property:
If the foreclosed property goes up for auction, you will need to submit bids in order to express interest. In order to bid, you must have a cashier’s check on hand for the total amount of your property bid. The winning bidder then procures the property, which is given in ‘as is’ condition. ‘As is’ may mean a multitude of things including non-working plumbing systems to a property which is still inhabited by occupants. There may also be other types of liens placed against your new property, all of which means you are responsible for taking care of each matter now that you own it.
Once a bank takes a property back over and they attempt to sell it rather than auction it off, the bank generally will deal with eviction of residents and likely will even work on some of the minor repairs the property needs. The bank will also likely deal with any liens on the property such as an IRS tax lien. A major difference in buying a foreclosed property at an auction and one being sold is that the potential buyer will have the opportunity to check out the property. They will also receive title insurance to protect them from any liens on the property’s title. Interested parties in a foreclosure sale may choose to use a real estate agent to do the negotiations or they may attempt to do the negotiations on their own.
Caveat Emptor (Buyer Beware)
It is the ‘as is’ condition of most foreclosed properties that is the utmost concern for buyers. Before any offer is made to a bank on a foreclosed property, buyers should do their homework to ensure they are fully aware of what they are getting.
Some common issues to address before any offer is made include:
- Inspection reports – ask the bank if there are any existing reports that relate to the recent condition of the property. In some cases, the home buyer may be awarded credits after inspections have been completed. The condition of the property may also be vital to your negotiations of price so it’s important to know where the property stands.
- Work Agreements – be sure to clarify what, if any, work will be done by the bank prior to turning over property ownership. If the property is being sold ‘as is’, ask if there is any documentation specific to ‘as in’ conditions.
- Reply Time – inquire to the bank as to how long it normally takes them to accept an offer on a foreclosed property for sale. If you are using an agent, they should inquire as to how an offer is to be submitted concerning an foreclosed, bank-owned property.
Never go into a foreclose property negotiation thinking you have the upper hand because the bank wants to dump the property fast. Typically, the bank or the mortgage company is in no rush to get rid of the property at any price. They are willing to play hardball in order to make the most profit on the sale. You also should be ready to make an offer and review the counteroffers, which may be more than you expected.
You have an obligation to yourself to really do your homework when it comes to buying a foreclosed property. Due diligence involves doing the inspections, comparing housing prices in the area, and exploring the condition of the home. Your offer needs to be serious and competitive with potential other offers if you wish to stand a chance. If you are using a real estate agent for negotiations, make sure you select one that has significant previous experience in negotiation foreclosed properties. Their expertise can be a valuable asset to your preparation. In the case of a foreclosure auction, you need to ensure you are financially stable enough to take a risk on such a property that is being auction since you have little chance to really explore what you may be getting.
More About Buying Foreclosed Homes
- How To Buy A Foreclosure: Find Foreclosed Homes Online at The Digerati Life
- The Top 6 Mistakes of Foreclosed-Home Buying at US News Money
- Buying a Home in Foreclosure: What You Need to Know at Consumer Affairs