Buying a Foreclosure; What You Need to Know

Many buyers today think buying a foreclosure means big savings and this can be true but buyers also need to be aware of potential pitfalls. A foreclosure takes place when a homeowner or property owner cannot pay the mortgage fees on the property and is forced to give up the property to the bank.

First, potential buyers should know there are different stages of foreclosure.

• Pre-Foreclosure

Pre-foreclosure stage is the earliest stage of foreclosure. Reaching pre-foreclosure status begins when the lender files a default notice on the property, which informs the property owner that the lender will proceed with pursuing legal action if the debt is not taken care of. At this point, the property owner has the opportunity to pay off the outstanding debt or sell the property before it is foreclosed.

In this stage, many homeowners may opt for what is called a short sale. Many of these homes will sell for near their appraised values. Banks may be willing to negotiate on these properties but the process can be lengthy. Properties that sell at a 20 to 40 percent discount usually need repair or are in unstable communities.

• Foreclosure Stage

If a property doesn’t sell in pre-foreclosure, and the home owner actually defaults on his mortgage, the home goes to public auction. During this stage you can find the best bargains but it can be filled with unexpected changes and last minute details. Preparation, patience and knowledge are key here and remember if a property does go to auction it will go to the highest bidder which is often the bank.

• Many auctions are canceled at the last moment as the property has been sold or payments reworked.
• Court-appointed trustees only accept cash or cashiers’ checks.
• There’s little time to arrange inspections, so bidders may have no clear idea of what they’re buying.
• Properties are sold “as is,” without warranties. Sellers needn’t disclose problems. Buyers may find themselves with unexpected and expensive repairs.

In the post-foreclosure stage, the lender has already taken control of the property. The home is then in the possession of the lender’s REO (Real Estate Owned) department, or in the hands of a new owner or investor who purchased the property at auction.

Lenders are typically extremely willing sellers, because an REO on the books is an obvious sign of having made a poor lending decision. Both the overhead and losses involved with an REO — reflected in both the added reserves a lender must maintain as well as any potential property management fees incurred — means the bank is likely a willing negotiator.

• Bank will not agree to do any repairs; as-is sale.
• Bank will usually require additional paperwork.
• Bank cannot provide disclosures as to property history/condition issues.

Bank foreclosure properties can definitely help you make a good buy in real estate properties and still have lots of savings. Doing your homework on the neighborhood, comparable sales and property condition are essential in making a good buying decision.

To start your home search now visit us online at http://www.keithmagnus.com