Why Buying a Foreclosed House My Be Your Best Bet As a Home Buyer

The housing market is cyclical and it currently is on a gradual rebound from the real estate collapse of 2008. The number of foreclosed properties is fewer than a few years ago, but there still are opportunities to buy a foreclosure at a respectable price.

Don’t know what you’re doing, don’t buy

Buying a foreclosed property is not for those who haven’t studied the foreclosure process as fully as possible before shopping for a foreclosure (aka real estate owned, REO, bank-owned). Study available online information, take community college courses, and attend seminars on investing in foreclosures.

Line up your financing ducks

The next step toward purchasing a foreclosure is to develop a detailed budget. Determine the absolute maximum you are willing to spend, including mortgage, property taxes, and insurance. Include some funding for potential repairs.

Then research REOs in your real estate market of interest.

Many foreclosed homes are in need of at least some rehabilitation. How much are you willing to spend on repairs? Are you planning to do the sweat equity or will you need to hire a contractor and crew to do the work?

Now look at your budget and list what you can afford to put into a down payment and earnest money. Will you have to take out a home loan?

Having the financing lined up before you place your bid on a foreclosure indicates to the selling financial institution that you are a serious buyer. Be aware that most REOs require this information along with your offer.

Be prepared to honor your budget and if the deal doesn’t come in under your limit, be prepared to walk away.

Buy smart

Some REOs are priced over market value. Know what like properties are selling for in the area. Several online real estate organizations list “comps” for the property in which you are interested as well as similar properties.

The REO bank typically doesn’t offer disclosure on a foreclosed property. Some homes are in terrible, even uninhabitable, condition. DO NOT consider, much less place a bid on, a foreclosure without first having a thorough property inspection completed by a licensed inspector. And be very cautious of any property that is listed significantly below market value. It may be hiding some serious issues.

Don’t go it alone: work with a real estate agent who has plenty of experience with foreclosures.

The good deal

A good deal in an REO property is one that needs little if any restoration. Or, it could be the rehab property that falls well within your budget and financing.

A stronger deal is the one for which you can pay cash. Be prepared to act quickly. Bidding wars on a desirable property can be common. Don’t lowball your offer. Make it clean, in cash (if possible), with few or no contingencies, and a quick close.

The best bet on a foreclosed property is the one for which you prepared – even before you began your search.

Foreclosure – How Long Before I Lose My House?

Many homeowners have questions about how foreclosure works and how long they have between when they miss a payment and when the bank actually forecloses. If you’re wondering how long you have before you have to leave, it depends on whether your case will be handled in a judicial foreclosure or in a non-judicial foreclosure. Most states allow both, but some states only allow one or the other, so you’ll have to research to find out which your is for sure, but there’s a good chance yours will be non-judicial because it moves faster and costs less for the lender.

All Foreclosures

– You miss your first payment (for example, we’ll say this is your July payment and it was due on July 1).

– Your grace period expires (usually 15 days) and you haven’t paid. Your payment is now considered late by your lender. It’s not uncommon to begin getting letters or phone calls from them at this point. Don’t ignore these phone calls.

– At most lenders, once you’re 60 days late (September 2 in our case), your loan is considered in default and the lender can begin either the Judicial or Non-Judicial foreclosure process. To bring your loan current at this point, you’ll usually be required to pay all past due amounts (your July and August payments), all late fees, and your September payment.

This is where lenders have the most flexibility in the process. They aren’t required to enter the foreclosure process simply because you’ve fallen a certain number of days behind. If you’re in communication with them and have worked out a plan to get back current, you can stay out of foreclosure altogether, but you have to take action.

Judicial Foreclosures

– Your lender’s lawyer will file a complaint with your county courthouse and request a court date. This typically doesn’t happen until you’re over 90 days late.

– You’ll be served a notice of this complaint.

– A hearing will be held in your county to determine the sufficiency of the complaint. If you believe you have legal grounds to dispute the foreclosure, this is where you and your lawyer would argue those grounds. At the end of this hearing, the judge will rule whether the complaint is sufficient or not. If it is, the foreclosure sale will be scheduled and your credit record will be marked as having a foreclosure. If it’s not sufficient, the judge will dismiss it. How long all of this takes is dependent upon the courts in your area. Typically, it takes about 30 – 60 days.

– A date will be set for redemption of the property if your state laws stipulate. You can still bring your loan current (including fees, etc) until the redemption date. Even if the house has been sold and someone has moved in, if the redemption date hasn’t passed, you can still get your house back…if you can get enough money.

– A date will be set for the foreclosure auction. This usually happens about 30 – 45 days after the sufficiency hearing.

*** A Judicial foreclosure typically takes anywhere from 6 months to 2 years from start to finish. ***

Non-Judicial Foreclosures

– Your lender will send you a Notice of Default in the mail.

– Your lender will send you a Notice of Sale to tell you when your home will be sold at the foreclosure auction.

*** A Non-Judicial foreclosure typically takes anywhere from 1 month to 1 year to complete. ***

All Foreclosures

– The foreclosure sale happens and your house is sold. In approximately 90 – 95% of cases, the owner of your first mortgage wins the auction because they bid the amount that you owe on that loan and usually no one else will go higher than that.

The owner of your home then contacts the county sheriff who posts a notice of eviction on your door. This notice gives you 24 – 72 hours to leave the house and have all of your possessions out. If you’re there when the sheriff returns, he will escort of off the premises and anything left on or in the property will then belong to the new homeowner.

Selling A House In Foreclosure

When most people are notified by their lender that their house will soon go into foreclosure, they think all is lost. While it’s a difficult time, the good news is you do still have options that will not hurt you as much financially, such as a short sale. This will allow you to sell your home prior to foreclosure, with the bank getting all the proceeds from the sale. While it may not equal the entire amount of what’s owed, it will generally be enough to satisfy the bank, since it doesn’t want to spend time trying to sell the property and possibly receiving less money in the process. But if you’ve decided it’s time to sell your house quickly, here are a few tips to keep in mind.

If you have a home going into foreclosure due to a divorce, illness, relocation, inheritance, or other life event, always be sure to get your lender’s permission before going ahead with a short sale. By discussing your situation with them ahead of time, you’ll be able to show you’re not being irresponsible in repaying the loan, but rather have had extenuating circumstances occur that led to the current situation.

In these situations, don’t go it alone. Instead, hire a real estate professional to assist you. By doing so, they can help set a reasonable price for the property, answer any questions you may have, and even act as a buffer between you and your lender if necessary. This will be especially important if the current housing market is weak, since it may take a bit more work to find a buyer.

Once you’ve got a buyer willing to pay your asking price, meet with your lender. Since you’ll already have a buyer ready to take the property, chances are the bank will accept the bid, so long as it’s reasonable. As added insurance, be sure to inform the lender that if they reject the bid, foreclosure is inevitable, since this will give them extra incentive to give you their approval.

When you decide it’s time to sell your house quickly due to such factors as divorce or illness, make sure you get a promise in writing from your lender that they will not pursue a deficiency judgement against you once your home is sold. This would be the difference between what the property sells for and the remaining balance on the mortgage, if any. By knowing no legal action will be taken against you, it will be much less stressful to sell your home during what is already a difficult time in your life.