Foreclosure Shopping
Several people have been asking me questions about foreclosures recently. My grandfather used to say, “With adversity comes opportunity.” I’m not sure he was thinking about the real estate market but several people are interesting in profiting from another’s loss. I suspect, however, more money is being made by the people and companies promoting, locating and how to buy a foreclosure, than by people who are actually buying and selling them.
A cottage industry has sprung up promoting buying foreclosures. Slick sales presentations disguised as “Free Workshops” or “Investment Seminars” provide us (for a fee) their secrets to making big bucks buying foreclosures. Who couldn’t use an extra “$10,000 A Month”, simply buying and selling foreclosures? Don’t we all want to discover “Hidden Deals and Big Profits?” Thousands of Internet sites are offering subscription services in locating “Opportunities” or selling their “Proven Ways to Wealth” “Don’t you want to become a Money Making Machine?”
Homebuyers have three opportunities when considering buying a foreclosure: The first is during the preforeclosure when a borrower goes into default. The second is at the foreclosure auction on the courthouse steps when the property is sold to the highest bidder or finally after the lender has acquired the property at the foreclosure auction and has listed the property for sale as an REO (real estate owned) or bank owned property.
Foreclosure shopping is a risky business and should not be attempted without the assistance of your team of experts consisting of a knowledgeable agent, home inspector and appraiser. There are no representations, disclosures or warranties when buying at a foreclosure auction. The purchase is “as is” “all cash” and “final sale.” Most foreclosed homes at some time have been previously listed and have not sold for a reason. Distressed properties and poor locations are usual characteristics with a foreclosure property. Attractive pricing may be an attempt to disguise or offset a property’s inherent faults.
A preforeclosure occurs after a borrower has missed at least one payment and the lender has filed a recorded notice against the property called a Notice of Default. The NOD begins the foreclosure process. Default notices are published regularly in the newspaper and can be obtained by subscription on and off-line and through data firms that track such information. When a borrower receives a NOD they have a few choices to make: They can catch-up any back payments, penalties and interest and reinstate the loan, sell the property and pay off the lender, negotiate with the lender for some type of work-out including a short sale, file for bankruptcy or ignore the situation and wait for the lender to evict them from the property.
Buying a preforeclosure or a listed bank owned property has advantages over an auction since it allows a buyer valuable time to perform a home inspection and research the title. Preforeclosure sellers may be more accommodating to a buyer’s request for repairs or assist with closing costs. When sellers are faced with the reality of loosing their home and their credit, they are more likely to take an offer that will salvage something of both.
Buyers should not expect substantially discounted home prices when considering a bank owned property. Often, lenders price a property according to the amount of their mortgage, attempting to recover their investment. In addition to federal regulators, lenders are pressured by their stockholders to sell their REOs at top dollar.
As with any investment, one should have a contingency plan when buying foreclosures. I call this, my “what if” factor. What if it costs more money than I have allocated? What if I can’t rent it for the payments? What if the property values drop further? Buying any investment has certain risks but buying a foreclosure I consider equal to bungee jumping or alligator wrestling. Another one of granddads favorite sayings was “Never play another man’s game.” He was opposed to financial situations controlled by others. Good advice when considering a financially distressed property.
A cottage industry has sprung up promoting buying foreclosures. Slick sales presentations disguised as “Free Workshops” or “Investment Seminars” provide us (for a fee) their secrets to making big bucks buying foreclosures. Who couldn’t use an extra “$10,000 A Month”, simply buying and selling foreclosures? Don’t we all want to discover “Hidden Deals and Big Profits?” Thousands of Internet sites are offering subscription services in locating “Opportunities” or selling their “Proven Ways to Wealth” “Don’t you want to become a Money Making Machine?”
Homebuyers have three opportunities when considering buying a foreclosure: The first is during the preforeclosure when a borrower goes into default. The second is at the foreclosure auction on the courthouse steps when the property is sold to the highest bidder or finally after the lender has acquired the property at the foreclosure auction and has listed the property for sale as an REO (real estate owned) or bank owned property.
Foreclosure shopping is a risky business and should not be attempted without the assistance of your team of experts consisting of a knowledgeable agent, home inspector and appraiser. There are no representations, disclosures or warranties when buying at a foreclosure auction. The purchase is “as is” “all cash” and “final sale.” Most foreclosed homes at some time have been previously listed and have not sold for a reason. Distressed properties and poor locations are usual characteristics with a foreclosure property. Attractive pricing may be an attempt to disguise or offset a property’s inherent faults.
A preforeclosure occurs after a borrower has missed at least one payment and the lender has filed a recorded notice against the property called a Notice of Default. The NOD begins the foreclosure process. Default notices are published regularly in the newspaper and can be obtained by subscription on and off-line and through data firms that track such information. When a borrower receives a NOD they have a few choices to make: They can catch-up any back payments, penalties and interest and reinstate the loan, sell the property and pay off the lender, negotiate with the lender for some type of work-out including a short sale, file for bankruptcy or ignore the situation and wait for the lender to evict them from the property.
Buying a preforeclosure or a listed bank owned property has advantages over an auction since it allows a buyer valuable time to perform a home inspection and research the title. Preforeclosure sellers may be more accommodating to a buyer’s request for repairs or assist with closing costs. When sellers are faced with the reality of loosing their home and their credit, they are more likely to take an offer that will salvage something of both.
Buyers should not expect substantially discounted home prices when considering a bank owned property. Often, lenders price a property according to the amount of their mortgage, attempting to recover their investment. In addition to federal regulators, lenders are pressured by their stockholders to sell their REOs at top dollar.
As with any investment, one should have a contingency plan when buying foreclosures. I call this, my “what if” factor. What if it costs more money than I have allocated? What if I can’t rent it for the payments? What if the property values drop further? Buying any investment has certain risks but buying a foreclosure I consider equal to bungee jumping or alligator wrestling. Another one of granddads favorite sayings was “Never play another man’s game.” He was opposed to financial situations controlled by others. Good advice when considering a financially distressed property.
posted by Ken Calhoon at 7:04 AM
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