Buying a foreclosed home is not like the typical home purchase. In many cases:
• Only one real estate agent is involved.
• The seller wants a preapproval letter from a lender before accepting an offer.
• There is little, if any, room for negotiation.
• The home is sold as-is, and it’s up to the buyer to pay for repairs.
• On the upside, most bank-owned homes are vacant, which can speed up the process of moving in.
Steps To Buying A Foreclosed Home
• Find an agent specializing in foreclosures.
• Get preapproved for a mortgage.
• Know how long it takes to sell a home in your price bracket.
• Study the sale prices of comparable homes in your area.
• Remember, the home is sold as-is.
Find A Real Estate Broker And A Lender
The first two steps for buying a foreclosure should be taken at the same time. While you’re looking for a real estate broker who works directly with banks that own foreclosed homes, get a preapproval letter from a lender.
Get A Broker On Your Side
The goal of combing through foreclosure listings is not to find a house; it’s to find an agent. Banks usually hire real estate brokers to handle their REO properties. In many cases, the buyer works directly with the bank’s broker instead of using a buyer’s agent. That way, the commission doesn’t have to be split between two brokers. “A lot of these Realtors have a long-term relationship with these banks, and they know of listings that haven’t even come on the list yet,” “Call them about the listings that you’re interested in, but also ask them about listings that may be coming up because sometimes it may take a day or two or even a week before a listing actually comes onto the database.” In places where thousands of foreclosed properties are for sale, you might not get much attention from overloaded agents. To prove that you’re serious about buying, “Right before or after you meet with the agent, meet with the lender.”
Get A Preapproval Letter
Unless you plan to pay cash, you’ll need a recent preapproval letter from a lender. The letter will detail how much money you can borrow, based on the lender’s assessment of your credit score and income. “The problem is, buyers want to find the house first, and then they think they’ll work out the financing.” “But the problem is, the really good deals on these bank-owned, they go quick and the buyer doesn’t necessarily have time to try to work out the financing afterward. They need to work that out first.”
Submitting an Offer on a Foreclosure without a Real Estate Agent
A foreclosure offers the opportunity for you and your partner to purchase a home for less than its sticker price. These bank-owned properties can be purchased without a real estate agent as long as you know the foreclosure laws in your state. If you understand these regulations, you’ll find yourself saving on any fees associated with agents and have more control over your fate as a buyer.
Know the Real Estate Foreclosure Laws in Your State
Foreclosures are heavily regulated on both the federal and state level. Each state has its own set of laws regarding bank-owned homes, so it is imperative for you to walk into your search with a clear understanding of local foreclosure legislation. Failing to do so could result in criminal or civil charges. If you have any specific questions, you can always contact a local real estate attorney for guidance.
Narrowing Your Real Estate Choices
Before jumping into the fire with an offer, find the neighborhood you prefer to move to. There are several private and government-run websites that will show you foreclosed properties in your town. Some of these may charge a fee to use their database. Understand that while you may find the right home for your price, there may be a significant amount of repairs needed. Expect to add about 10 percent to the final price of your home for repairs.
Submitting Your Real Estate Offer
Once you’ve found the home you want, it’s time to submit an offer. Since you will have to pay the amount of the home up front, you can either pay in cash or see if a bank will pre-approve you for a loan. Once you have your finances figured out, go forward with your offer. Be smart with the offer you initially put forward. While the bank may be offering a certain price, it’s always best to go beneath that amount, especially if there are issues with the home or if it’s been on the market for a long time. You should only go over the offered price if there’s high demand for the property.
Real Estate Foreclosure Negotiations
When negotiating with the bank, be sure to keep your offer reasonable. Low-balling the bank may cause it to walk away from negotiations for good, locking you out of any further discussions for the property. If you do offer a wholesale price, it’s best if you present your reasons for the offer in writing and in person with the bank or agent. By giving a specific reason for buying the house at such a low rate, you may find the chance of your offer being accepted to be significantly improved.
Offering a Deposit For Real Estate
The chance of your offer being approved may also be helped if you make a good-faith deposit. Offering a percentage of the sale price during negotiations and to close quickly may cause the bank to favor you over other prospective buyers. However, if you do put money down, be sure you’re 100 percent sure of the property. Many contracts include a clause that you forfeit your deposit if you back out for any reason.
What Do I Need to Know Before Buying a Foreclosed Home?
Buyers are often attracted to the idea of purchasing a foreclosed home because of the low price. First-time homebuyers may be able to get a bigger house than they could otherwise afford. However, to be prepared for what lies ahead, it’s important to understand the process and appreciate what differentiates a foreclosed home from other properties.
Types of Foreclosures
All foreclosures are not the same. In fact, you should know about three different kinds of foreclosures:
• Strict foreclosure: A strict foreclosure is allowed in only a few states. In this scenario, the lender can file a lawsuit as soon as the law permits the lender to do so after the homeowner has defaulted on a loan. Once foreclosed, if the homeowner is unable to pay within the court-ordered timeframe, the mortgage holder becomes the owner and the property can be sold immediately.
• Judicial foreclosure: This type of foreclosure is allowed in all states and required in some. The process begins when the lender files a law suit against the borrower demanding repayment of the delinquent payments on the mortgage. If not repaid or the borrower does not have a defense or does not appear in court, a judgment is granted by the court to the lawyer. The borrower is given time to redeem the property and if this doesn’t happen, the lender begins the process of selling the property at an auction.
• Non-judicial foreclosure: With this process, also called a power of sale, no court is needed to handle the foreclosure. The lender sends out notices to the homeowner until the end of the waiting period. The mortgage company then holds a public auction without the assistance of a court or sheriff.
The primary difference between buying a foreclosure and a regularly listed property is that with a foreclosure, the seller is the bank. This will impact all aspects of the selling process. The time frame is much shorter than with a traditional sale, so you need to be ready to buy with financing already secured. When foreclosed properties are sold at an auction, cash is usually required. This may just be a larger down payment with the remaining balance to be paid by a certain date, or it could mean paying for the entire purchase up front. In other cases, properties have already been through an auction and the bank was the winning bidder. These properties, called real estate owned (REO), can be purchased through a real estate agent similar to a traditional purchase. Another big difference is that you are buying the property “as is”. You should still get an inspection; in fact, a thorough inspection is recommended to determine what issues the property may have. Previous owners may have left the home in a bad condition or taken things of value before they vacated. In other cases, an empty home may have invited vandalism or theft that isn’t obvious without a sound investigation from a knowledgeable inspector. Keep in mind that the bank generally will not pay for repairs or reduce the price to compensate for problems found in the inspection. In making our purchase decision, be sure to establish a budget that includes not only the purchase costs, but also expected near-term and long-term repairs. If you are not familiar with the foreclosure process, it is a good idea to work with a real estate agent who knows the process well or an attorney specializing in the area. You also need to get preapproved and let your lender know you are focusing on foreclosures. A foreclosure may look like a big bargain; be sure to make a balanced analysis of the risks and opportunities of purchasing and possibly improving a foreclosed property before you take on this financial obligation.
Common Legal Problems that Arise During the Process
The foreclosure of a property normally occurs when the creditor, or the bank or lender, repossesses the real estate because of debts owed but not paid by the property owner. The owner may default on a loan, not have the money to pay for the house or could face other legal problems that can hold up the foreclosure as well.
The Foreclosure Process in Standard Situations
When a person cannot pay the loan, interest, certain payments or is unable to provide the necessary money for a duration of time, he or she will face foreclosure when there are no arrangements with the lender. The debt requires repayment and the foreclosure is the process to provide the bank or other type of lender with the funds to account for the missing money. This generally follows certain steps starting with paperwork with the lender and then proceeding to the next stage. The holder of the mortgage will provide notice of the default payments through written documentation. This will also provide the formal notice of default payment.
Next Steps of Real Estate Foreclosure
The homeowner will have a short period of time to make up the default payments and ensure all or at least a certain amount of this money is given to the lender through interest, penalties and other fees added to the initial amount. The lender will then start the foreclosure process either through a lawsuit in court or non-judicial based on the laws of the state where the property resides. This could lead to both legal processes as in certain states it is permissible to pursue each according to the legal procedure available. After the default process ends, the lender will start the foreclosure sale process.
Legal Problems with Foreclosure In Utah
There are several problems that can occur through foreclosure that can legally complicate this process. The tenant can remain in the home requiring an unlawful detainer suit against this person. The property can sell at auction or sit and deteriorate if no one purchases it. Sometimes, foreclosure starts and does not progress to a sale even in standard procedures. The mortgage holder may not provide proper notice to the tenant to move out or that the foreclosure will progress to the next step. The homeowner may come up with the money but not in time to stop the foreclosure because of a lack of communication.
Debt and the Foreclosure
Legal aspects regarding debt and the financial aspect of the foreclosure can affect the homeowner that loses the property. If this individual needs to file for bankruptcy, he or she should start this when the lawyer deems it appropriate. However, the foreclosure action that the lender takes can wipe out at least some of the debt the owner accrued with the mortgage. Unfortunately, this person will still need to pay off second and subsequent mortgages off even if the primary amount is no longer a factor. These issues can cause legal concerns to arise through additional companies or lenders.
Legal Obligations in a Foreclosure
Common legal problems in the foreclosure can occur if there is no proper notice to the homeowner, if the homeowner refuses to communicate or leave the property or if additional issues arise between the two parties. If the homeowner because difficult, he or she could disrupt the auction, could damage the property further or could make a scene in the lender’s offices. These matters could lead to legal complications such as an arrest and possible action against the person.
Legal Support in the Foreclosure Process
If there are any legal problems that occur with the foreclosure in favor of the homeowner, he or she can take advantage of them with a real estate lawyer looking into the situation. The lawyer may need to investigate to determine what happened and how to use these factors.