Foreclosures / Short Sales

What causes a foreclosure?

A lender decides to foreclosure, or repossess, a property when the owner fails to pay the mortgage. Unfortunately, thousands of homes end up in foreclosure every year. Many people lose their homes due to job loss, credit problems, divorce, unexpected expenses, and during periods of economic instability. Failure to pay property taxes may also cause a homeowner to lose his home. Trouble can also arise when owners neglect to pay local water bills and home insurance premiums.

Where can I find foreclosure properties?

Look in the legal notices section of your local newspaper. A notice is also usually posted on the property itself and somewhere in the city where the sale will take place. Additionally, your agent may have access to foreclosed properties and will be able to set up a specific search for you.

REALTOR®’s are the best source for information about foreclosures before they begin. Often a property will be listed and the agent will know if it is approaching foreclosure. Perhaps the best way to get the information is to have your agent put the word out that you are looking for properties with pending foreclosures.

Another source can be the bank or financial institution that holds the mortgage. Of course, they generally will not give you the names of those who are facing foreclosure, but they may give the property owner your card or phone number.

Buying foreclosures is not easy. Savvy investors are highly skilled at nabbing these properties. Inexperienced buyers may find themselves surrounded by pretty stiff competition. They will need to get as much information as possible, including a “foreclosure inspectionreport” and an appraisal from the lender.

What happens at a trustee sale?

When a homeowner falls behind on three payments, the bank will record a notice of default against the property. When the owner fails to pay up, a trustee sale is held, and the property is sold to the highest bidder. The lender that initiated the foreclosure proceedings will usually set the bid price at the loan amount. Successful bidders receive a trustee’s deed as proof of ownership. Trustee sales are advertised in advance and require all-cash bids, which can include cashiers’ checks. Normally, a sheriff, constable, or lawyer conducts the sale and acts as the trustee. Because these sales typically attract savvy investors, inexperienced buyers should come extremely prepared.

What are the disadvantages of buying foreclosures?

Buying directly at a legal foreclosure sale is risky. Among the disadvantages:

  • There is no financing. You need cash and lots of it.
  • The title needs to be checked before the purchase. If not, you risk assuming a seriously deficient title.
  • It may not be possible to inspect the property’s interior before the sale. So you have no idea of the property’s condition.
  • Foreclosures are routinely purchased “as is,” which means you cannot go back to the seller for repairs.
  • Also, estate and foreclosure sales are the only property sales that are exempt from some state disclosure laws. In both instances, the law protects the seller – usually the heir or financial institution – who has recently acquired the property through adverse circumstances and may have little or no direct information about it.

How do I find government-repossessed properties?

The Department of Housing and Urban Development (HUD) acquires properties from lenders who foreclose on mortgages that it insures. These properties are then available for sale to potential homeowner-occupants and investors only through a licensed real estate broker. HUD will pay the broker’s commission up to 6 percent of the sales price.

The Department of Veterans Affairs (VA) also acquires properties as a result of foreclosures on VA guaranteed loans. These acquired properties are marketed through a property management services contract with a federal bank that then lists them for sale with local REALTOR®’s.

What are some of the guidelines for purchasing HUD foreclosures?

If you have the cash or can qualify for a mortgage, you can buy a HUD home. Down payments vary depending on whether the property is eligible for FHA insurance. If so, the down payment can be lower than the 5 to 20 percent required on conventional loans. HUD requires that all accepted offers be accompanied by an earnest money deposit equal to 5 percent of the bid price, not to exceed $2,000, but not less than $500.

Foreclosure properties are sold “as is,” meaning limited repairs have been made but no structural or mechanical warranties are implied. If a HUD home needs to be fixed – and not all of them do – it can still be a bargain. HUD adjusts the asking price to reflect the fact that the buyer will have to invest money to make improvements. The agency also might offer special incentives such as an allowance to upgrade the property or a bonus for closing the sale early. And buyers can request that HUD pay all or a portion of the financing and closing costs. Contact your REALTOR® for more details.

To learn more about HUD foreclosures, visit their web site at www.hud.gov.

What about guidelines for VA foreclosures?

As with HUD, anyone can purchase a VA home. Qualified buyers also can receive the benefit of a VA loan – no money down – even if they are not veterans. If you are interested in purchasing a VA foreclosure, visit its web site, www.va.gov