How To Buy A Foreclosure In Today's Market

If you have good credit and are in the market for a home your timing may be perfect to pick up a bargain on a foreclosed home; especially if you don’t have to sell one prior to your purchase. It is estimated that foreclosed homes sell at an average of 25% off their market value, so if you have concerns about your ability to buy a home at full price, a foreclosed home may be a perfect option for you.

According to the foreclosure data-tracking company Realty Trac, nearly 766,000 homeowners in the United States received at least one foreclosure-related notice from July through September 2008, up 71% from a year earlier. Declining home prices, increasing unemployment and mounting credit card debt are all factors that are contributing to the huge increase in foreclosures. It is estimated by Moody’s Economy.com that 23 percent of existing homeowners with a mortgage owe more on their loans than their homes are worth, and that figure is expected to rise to 28 percent in the next year. Many investors, who in 2004-2006 flocked to hot real estate markets like California, Arizona, Nevada and Florida hoping to turn a quick profit, instead are now seeking the services of debt settlement and credit repair companies.

There are three basic phases of the foreclosure process (which does vary somewhat by state) and it is possible to purchase the property in any one of these. The first phase is pre-foreclosure, and property transactions are sometimes referred to as a “short sale” in this phase if the lender agrees to take less than is owed on the note. This type of sale is made through the homeowner after the foreclosure proceedings have been filed but before it has actually been ruled into foreclosure through the court system. Homeowners in this situation are typically under duress and most likely willing to sell for less than the home’s value in order to avoid the foreclosure proceeding and subsequent negative effect on their credit report. It is important to note that in the case of a deficiency (i.e., short sale) the lender is ultimately the decision maker as far as the terms of the purchase contract, and must approve any deal in addition to the actual homeowner. Most likely, if you purchase at this stage of the process, you will be able to have access to information (i.e. disclosures) of property past and present condition because the seller is still involved in the transaction and has somewhat of a vested interest in orchestrating the sale. You will also most likely have the opportunity to conduct full property inspections, and possibly negotiate for corrections of items that are unsatisfactory.

The second phase of the foreclosure process involves an auction. The biggest risk of buying in this phase is that you will most likely not have the opportunity to inspect the property beforehand; and you buy it “as-is” and “where-is”. Buying a foreclosed home through an auction may result in the highest cost savings, perhaps 40% or so off market price, but they are more difficult for non-seasoned investors because you will be competing with those in the business that do this on a daily basis, as well as the lender in most cases. In roughly half of these auctions, the lender simply takes back the property, as they want to ensure they do not lose money on the sale.  If you do manage to win a foreclosure auction, be prepared to pay the full amount of your bid by certified check or cash within a short time period. Additionally, if there are any homeowners or tenants still living on the property you may have to evict them yourself.

The final phase of the foreclosure process involves purchasing the property from the new owner: the lender. These generally are called “Real Estate Owned”, or REO properties, and occur when a lender or a bank has retained title and owns a property. REO sales are much like the traditional home buying a home process, but you still will most likely have to accept it “as-is” contingencies in your purchase contract with no promise of repairs or warranted items, as well as no disclosures. These properties are now completely owned by the bank, and will come with a clear title.

Buying a foreclosure is not for everyone, and all these transactions involve a certain level of risk in order to reap the reward of a discounted price. Do your homework and make sure you are comfortable with the risks. Since these homes are usually sold “as is,” you must inspect it thoroughly and make sure you do a complete title search so you are aware if there are back taxes owed or other financial matters that will transfer to you after the sale.

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This work by http://www.creditinfocenter.com is licensed under a Creative Commons Attribution-No Derivative Works 3.0 United States License.

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