When a borrower can't meet the payment obligations on a mortgage, the lender forecloses on the property and takes ownership of the property. Lenders then typically list the new foreclosures with a real estate agent and hope to sell it as quickly as possible.
How Can I Find Foreclosure Properties? |
Anyone can buy foreclosures. If you have the cash or can qualify for a mortgage, you can buy a foreclosure property.
For a potential buyer of a foreclosure home, you need to start by finding a licensed real estate agent. Your real estate agent must submit a bid for you for the foreclosure property. Before submitting a bid on a foreclosure, the real estate agent should have a completed and signed real estate purchase and sales contract and the earnest money deposit from the buyer. It is also recommended that the buyer and agent should perform a thorough investigation of the subject foreclosure property, and investigate financing for the buyer's potential purchase.
Your first opportunity comes in the "pre-foreclosure" stage, when owners have already defaulted on their mortgage payments but actual foreclosure hasn't started yet. To find out about houses in default, visit the local courthouse where defaults are registered. You can then make offers directly to the defaulting homeowner. However, few pre-foreclosure bargains exist among the most desirable homes. Many of those will sell for near their appraised values. Properties that sell at a 20 percent to 40 percent discount usually need repair or are in unstable communities. At this stage you have about 90 days to act after the default notice is posted and another 21 to 25 days after the foreclosure auction sale date is published. If a foreclosure property doesn't sell in pre-foreclosure it goes to public foreclosure auction. During this stage you can find the best bargains, but it is fraught with difficulties.
Here's some of what you're up against:
- Many foreclosure auctions are canceled at the last moment as the foreclosure property has been sold or payments reworked.
- Court-appointed trustees only accept cash or cashiers' checks for the foreclosure properties.
- There's little time to arrange inspections for foreclosure properties, so bidders may have no clear idea of what they're buying.
- Foreclosure properties are sold "as is," without warranties. Sellers needn't disclose problems. Buyers may find themselves with unexpected and expensive repairs.
After you buy at a foreclosure auction, the former owners may still be living there and you'll have to evict them. And some states have a right of redemption law; former owners can buy back the foreclosure property for the amount of the winning bid. They may do this for periods ranging from a month to a year, depending on the state. After you pay for the foreclosure property and other expenses, even repairs, the foreclosure house could be reclaimed by its previous owner. The outcome of most foreclosure auctions is that the lender, usually a bank, will buy back the property by bidding the amount of the mortgage. It later resells the foreclosure property through a broker. Banks do want to maximize profits, though. So buying from a lender these days may not result in big savings. That's a change from the mid 1990’s, when banks were having liquidity problems and interest rates were higher. Today, banks can afford to hold out for their price. At this stage, don't expect much more than a 5 percent or 10 percent discount from market value.
Some of the best foreclosure deals may be had through governmental or quasi-governmental agencies such as Fannie Mae, Freddie Mac, HUD, and the VA. Foreclosure listings are numerous and available on their Web sites, but the foreclosure properties they feature are often less upscale. Web auctioneer eBay lists thousands of foreclosure homes, too.
