If you are currently in the market for a new home, most experts agree that there has never been a better time to buy a foreclosure property. With mortgage defaults at an all-time high, it is truly a “buyers market” as banks and real estate agents try to reduce the massive inventory of available homes. Areas that have been hardest hit (including Florida, California, Nevada, and Arizona) offer unprecedented opportunities for buyers seeking primary residences, vacation homes, retirement homes, investment prospects, or rental properties.
You have a few options when searching for foreclosure properties. You can purchase a home during pre-foreclosure from the current mortgage holder, before it goes into final bank foreclosure. The home’s seller may be willing to accept a lower price in order to avoid the frustration and expense of bank foreclosure, not to mention the damage to their credit report. The mortgage holder/servicer may also be flexible and allow you to assume the existing mortgage from the seller. If you have a good credit score, they are more likely to work with you towards a mutually acceptable purchase offer, as well as a suitable interest rate and loan term. Buying a home in pre-foreclosure alleviates the bank’s problem of holding a property that requires ongoing maintenance and repairs.
Bank-owned or REO (Real Estate Owned) properties offer the least risky option for homebuyers because there are no taxes or liens, or tenants to evict ― the bank has already taken care of these issues during the bank foreclosure process. If the bank is anxious to sell, you may be able to buy a foreclosed home for less than the price of comparable properties in the neighborhood. The bank may also accept a lower-than-usual down payment, or offer to finance the home at a below-market interest rate. Since the bank has already done an appraisal (to determine the property’s value) and conducted a title search (to ensure there are no liens against the property), the buyer may not have to pay these fees. Another advantage to purchasing a bank foreclosed property is that the lender pays the real estate agent’s commission.
Keep in mind that bank foreclosed properties are offered in “as is” condition, and generally banks will not pay for any repairs or other problems associated with the home. As long as the foreclosure property is in a decent neighborhood, most buyers jump at the chance to purchase a home for below market value, even if repairs are needed. Homes that are run-down and require extensive restoration may be sold at even steeper discounts.
When making an offer on a foreclosed property, be sure to include a contingency clause that allows you to cancel the sale if inspections reveal unanticipated damages that the bank will not repair. Sometimes, in order to avoid putting the house back on the market, the bank will offer a credit towards the cost of the repairs ― making the bank foreclosed property even more attractive to the buyer.
Buying a foreclosure at a public auction is another inexpensive way to purchase property, but you’ll need to take precautions. While you may be able to get a home at a substantial discount (compared to standard homebuying methods or traditional bank foreclosure), the home’s interior may not be inspected as thoroughly as you’d like, and you could be in for a big surprise when you take possession of the property. You may also have to evict the home’s occupants, deal with angry tenants, or discover that the former owners stripped the appliances and defaced the interior.
Before you bid on a bank foreclosed property at auction, see if you’re permitted to hire a professional to inspect the property. You can also check the Internet for previous real estate listings on the property, to see if there are photos or descriptions about its layout and condition. Keep in mind that there could be judgments or liens attached to the property, or even another foreclosure, which is a potential area of concern. Make sure you consult a real estate attorney about your options before you proceed.
No matter what method you choose (whether it be a pre-foreclosure, bank foreclosure, or auction foreclosure property), try to find a real estate agent who deals specifically with foreclosures ― someone who understands foreclosure laws, is familiar with the area, knows what current property values are, and can help you find a home inspector and mortgage lender.
An experienced foreclosure agent can also help you negotiate with a bank, especially when the property has been on the market for an extended period of time. In addition, many banks are willing to negotiate a “short sale,” in which the property is sold for less than the debt owed on the house.