Wherever you live, there are three ways you can proceed when buying a foreclosure: in a presale (before the lender forecloses), at auction or directly from the bank. In a presale, you negotiate with homeowners directly, before their home goes into foreclosure. Although the discount can be as much as 20% to 40% off the property's value, a presale is the riskiest way to purchase because deals frequently fall through and title problems are rife. And pre-foreclosure buyers have to add in the cost of an inspection and fork over real estate excise tax, as do those who purchase bank-owned property. (Purchsers at auction may avoid these costs in some states.)
Securing a foreclosure at a public auction is the most common type of foreclosure purchase. CLients can expect a discount of 10% to 25% compared with buying a home through traditional channels, says Dean Street, an agent and 30-year veteran of foreclosure buying in the western U.S. But the road to auction can be bumpy, too. For starters, you often cannot inspect the interior of the home. Street says it's vital to see the property even if you can't gain entry. "If there is 300 pounds of garbage in the front yard, there is probably 600 pounds inside," he says. One way to research the interior is to check the local building department's permit records, or have your agent see if a recent listing has information on appearance, layout and previous remodelings.
Most foreclosures that go to auction get postponed, usually due to bankruptcy or loss mitigation (when the bank tries to compromise with the borrower), says Chris Matty, marketing director of ForeclosurePoint.com. He notes that opening bids also change frequently, especially as home values are marked down further.
The winning bidder will pay for the property and take ownership within a set period of time, which varies according to state law. But you're not out of the woods yet. Some states, such as North Carolina, give former homeowners a chance to purchase the property back. Sometimes foreclosure buyers have to start eviction proceedings; once the house is vacant, you usually have to schedule repairs.
Working with a Lender/Bank?
Work with the lender? If no one purchases a property at the auction, it usually ends up back with the bank. Banks have a lot of these real estate owned, or REO, properties in their portfolios and are actively trying to sell them through agents. And unlike buying at auction, you can usually get a traditional mortgage for an REO. Unfortunately, lenders often list the property at or near market value to recover the outstanding loan amount along with legal fees, property taxes and maintenance costs.
But an experienced foreclosure broker can negotiate aggressively with a bank, especially when the property has been listed for a year or more. Plus, banks trying to sell foreclosures sometimes offer highly competitive financing packages to buyers, including low down payments and attractive rates. As home values decline, some lenders are willing to negotiate a "short sale," in which the property is sold for less than the debt owed on the house. That's one way foreclosure buyers can profit. In some markets, the discount is as much as 25%; but where there's less inventory, the discount can be smaller.
You can find REOs through real estate agents. Or approach local banks or mortgage brokers directly and let them know you are prepared to buy a property "as is" with cash and request a discount from the asking price. Banks sometimes pay to remodel properties to improve their value. But with so much inventory on their books right now, most lenders want to unload foreclosed homes quickly, without having to refurbish them.
Are you looking for Short Sale or Foreclosed homes in the
Greater Chicagoland Area? Clik Here!