With the downturn in the economy over the past two years, hundreds of thousands of homes have gone into foreclosure, offering a unique, once-in-a-lifetime opportunity for many Americans to buy a home at an unheard of price, sometimes 30 percent or more off the most recent sale price.
Buying a home is always a challenge. Buying a foreclosed home presents unique challenges. You need to be willing to hunt, put up with lenders who offer surprisingly little information about the properties they’ve taken back, real estate agents who have little experience or incentive in selling foreclosed homes, and loan officers who demand nearly perfect credit ratings to obtain a loan in today’s tight-fisted market.
Foreclosed properties are typically referred to as REOs (real estate owned by the lender), according to findlaw.com, a leading online resource for legal information, and are owned by the lending institution or government agency that backed the mortgage.
Banks and other home-lending institutions are not in the business of owning property. They’re in the business of making money on the money they lend. So it’s in their best interest to sell a foreclosed property, and they are often anxious to do so.
Properties of all types, including single-family homes and condominiums, can be foreclosed. Depending upon local regulations and traditions, some lending institutions will sell their properties through real estate agents who specialize in REO properties, while other institutions will sell foreclosed properties through auctions conducted by a county sheriff.
Because of the volume of foreclosed homes currently on the market, a growing number of lenders have turned to selling properties through heavily advertised public auctions in which dozens or sometimes hundreds of properties are sold in one or two days.
The Federal Housing Administration has sold foreclosed properties through local auctions for many years, typically announced in the classified sections of local newspapers. Potential buyers submit bids on the day of the auction, accompanied by a certified check for a percentage of the bid price. The highest bidder usually gets the home.
Buying a foreclosed property can be risky if you are not familiar with the procedures involved. Such a sale may not include the safeguards that are present in a traditional sale, such as a lender and a title insurance company.
Therefore, if you plan to buy foreclosed properties, says findlaw.com, it is important to familiarize yourself with the process and consult with a lawyer who specializes in this area.
Here are some other tips from findlaw.com about buying a foreclosed home:
• Not all foreclosed properties are good deals. It seems like foreclosed properties are everywhere these days; however, not every property is a smart purchase.
Search for a foreclosed property as if you were buying a home in a hot market. Start by researching neighborhoods that you really want to live in, then get in your car and drive through the neighborhood looking for properties that aren’t kept up as well as neighboring properties.
• Find an experienced real estate agent. Some sellers of foreclosed properties, including lenders that have repossessed a property, may refuse to work directly with the buyer. Find a real estate agency that has experience in dealing with foreclosures and will represent you.
• Hire a real estate attorney. All states have different laws and regulations involving foreclosed properties. You may need to consult with a real estate attorney specializing in foreclosed properties to assist you.
Buying a foreclosed home can be a complex and time-consuming process in some states; the right attorney may be able to help you through the red tape.
• Check the assessor’s office. Many counties now include vital ownership and tax information on their Web sites about residential property, including the identity of the owner, the previous price paid for the home, and how much the property is being taxed.
Knowing what the previous owner paid for the property will help you gauge its potential worth now.
• Tour and inspect the property. It’s vital to inspect any property before buying it, but it’s absolutely critical when buying a foreclosed property.
Many foreclosed homes are not kept up or have been abused by their former owner and may require thousands of dollars in repairs and maintenance.
If the property is located in a neighborhood with a lot of potential, investing to rehab a property may be worth the money.
• Have your financing lined up. Over the past two years, many lenders have tightened their lending standards and are only offering loans to those who have solid credit ratings and the long-term means to pay for a home.
Sellers of foreclosed properties are leery of buyers who don’t have their financing together. Like buying a home at the top of the market, it’s in your best interest to offer the most solid financial package in order to win the home you want.
—Courtesy of ARAcontent