Foreclosed properties can be priced at a substantial discount, but they can also be a riskier investment. Before making an offer on a foreclosed property, please contact me. I am a Certified Distressed Property Expert and deal with these types of properties on a daily basis.
Items of consideration before you buy a foreclosure:
- Title Search – Prior to the purchase of a foreclosure, determine if there is any other person who has a claim of ownership.
- Liens – Determine if there are any liens against the property because you do not want to be held financially liable.
- Value – Foreclosures are sold “AS IS” and in many cases you will not be able to do a proper inspection prior to purchase.
It is also important to consider that there are different types of foreclosure properties and each type comes with its own advantages and disadvantages. The different types of foreclosure purchases are:
A preforeclosure is when you buy the home directly from the homeowner, before the bank officially forecloses. This type of purchase does not require as much capital as other foreclosures. Also, since you are purchasing straight from the homeowner, you will be able to gather all of the necessary information, such as inspection reports, title information, etc. that may not be available with other foreclosure properties. Once you take over the mortgage, you will be responsible for all future payments as well as any overdue back payments.
A foreclosure property will usually end up at an auction. Real estate auction practices vary by state but common practice is for the auction to be held on courthouse steps, in front of the foreclosed home, or at the county clerk’s office.
Real estate auctions offer the best chance for a great deal but also hold the greatest risk. Auction properties are sold as is, with no opportunity for potential buyers to perform inspections. When buying a home at auction, the buyer must pay cash, usually a cashiers’ check. It is also possible that there may still be tenants living in the home. In such a case, you would be responsible for the often costly eviction process.
Once a foreclosure has gone to auction and failed to sell, it becomes a Real Estate Owned, or bank owned, property. Most homes do not sell at auction, most fail to even get any bids.
An REO property is the least likely of the foreclosure properties to represent a bargain, but it is also the least risky. The property can be fully inspected, any title issues can be found and dealt with, and the sale can be subject to a mortgage. REO properties also tend to be in better condition than other foreclosure properties.
Another thing to keep in mind when purchasing a foreclosure is that some states have a redemption period that allows the original owner to buy back the property by paying the remaining balance owed. You may be able to have this redemption period waived, so check the state laws on this topic before purchasing.
An approved short sale is a sale in which the lender has pre-approved a price to accept for the property. The lender may agree to the sale price and terms of the sale and supply the homeowner with a written agreement to this effect.
An unapproved short sale signifies that the lender knows that the current homeowner lacks sufficient funds to pay off the mortgage and may accept a lower offer for the home than the amount of debt that is currently owed on the property; however, the lender has not agreed to accept any particular amount for the property. The homeowner can accept the offer, but the deal will not go through if the lender does not accept the offer. Due to the requirement of this double acceptance, unapproved short sales typically take longer than approved short sales.