My husband and I have recently moved to a new area and are temporarily
renting until we can make a wise investment decision on a home
purchase. We know the value of buying and selling real estate wisely,
and are therefore carefully researching the area to be ready at a
moment's notice to pounce on a deal.
But - I'm very curious foreclosed homes. I'd like to ask if there's
anyone out there who has experience in buying foreclosures. What's
involved? How do I get in the loop to hear about them? Are there any
red flags I should be aware of? How does financing work?
Patty
Consider Auctions, Too
I spoke to a courthouse employee several weeks ago regarding foreclosure
and tax lien sales. What he told me is that in foreclosures, the lender
purchases the home 99.9% of the time. They will then list with a local
real estate agent in order to recover their loss.
You should probably consult a professional regarding tax lien sales. It
was my understanding that after 3 years of unpaid taxes, the county offers
the property at the courthouse steps to the highest bidder. The people who
are losing the property can reclaim it within 2 years of the auction date
by paying the delinquent taxes. You are not entitled to any compensation
for repairs, improvements, etc. you performed on the property. After 2
years you can get a deed to the property. The courthouse employee used
this scenario regarding tax lien sales.....you buy a house and it needs a
new roof. You better wait 2 years before fixing it or else there's a good
chance you're fixing up someone else's house.
I think a better chance to get good deals is to go to auctions where the
real estate is also being offered. Do your homework on the local market,
what's selling, what's included, etc. Do inspect the house thoroughly.
Check the plumbing, the electrical, the floor joists, look up in the attic.
Don't be intimidated by the number of people at the auction talking about
the property....it's safe to say 90% are just curious, 5% might be
interested if it doesn't go too high and the other 5% are serious. If you
have 100 people at the auction, it's between you and 4 others! Don't get
caught up in auction-fever. I am aware of a house in my area purchased at
auction for $42K and its appraised value was $67K.
Debbie
Our FHA Repo
We bought our house as an FHA repossession 5 years ago. Here in
Indianapolis, the properties are listed in the Sunday newspaper's Real
Estate section, with a suggested price based on appraisal (usually this is
the appraised figure). It is a closed bidding process, which means that
you submit your offer, through your realtor, to the FHA board. They only
open the bids on the day of the sale, and the best offer takes the
property. FHA pays most of the closing costs.
Most of these homes need some work, as they've been abandoned by the owners
or abused. We faced pipes that had burst with a winter freeze and LOTS of
cosmetic work (carpet, paint, etc.). Sometimes you will even find a
furnace missing! But you can usually get a great deal if you find the
right property for you. We only spent about $5k fixing our house up (and
the house was liveable when we took possession); we could probably get
close to $30K in profit if we were to sell it. And I would not
necessarily consider this house a "fixer-upper," as it didn't need any
major construction work done.
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Another place to check is the Veteran's Administration, which also lists
foreclosed homes, and often you can find homes being auctioned by the
Sheriff's Department or by private owners. Each process differs as to the
way you bid and purchase, but all are relatively simple. Providing you are
realistic in what you can spend and what is reasonable to fix up, you can
get a great deal. We are very happy with our home.
Jenny W
From Fannie Mae
Last year, we bought a house that had been foreclosed on. I found it on-line through the Fannie Mae web site. Some points to consider on foreclosed homes: They are usually sold as-is without warranty. The mortgage company may have no idea about problems or remodeling done to the house. If the house was left unoccupied in winter (in the northern part of the country) pipes may have frozen or other damage may have occurred. Have a thorough home inspection prior to buying it. Also with the mortgage holder out of state, it took longer to get our mortgage paperwork completed and approved. Make sure the foreclosure paperwork is properly completed and registered.
Andy S.
A VA Foreclosure
Our home was a VA foreclosure,
which we had spotted while looking at the house across the street.
Foreclosures must be advertised in the newspaper; however, I strongly
recommend scouting around for the little white foreclosure notices, which
are posted on the foreclosed houses for some time prior to running the ad.
In our case, by the time the ad ran, we had already looked at the house and
decided that it was a good investment. The day the ad ran, we pounced. We
called a real estate agent who we knew and asked her to bid on the house
for us. There were many people who bid on the house, but they all bid at or
below the asking price, which was low to begin with. If you know the asking
price is a steal, don't be greedy and risk losing the bid. Bid a few
hundred dollars MORE than the asking price. We thought our agent was
ripping us off to do that, but we got the house for $42,000, when it was
appraised at $55,000. Now after some renovations and rising property
values, I own a house which is worth more than $100,000.
Susan S.
Buying Through HUD
My husband and I just purchased our first home through H.U.D. (in California). We got a $100.00 down-payment certificate at the local home show and found a realtor whom we liked and trusted. He mailed us the list of houses for sale each week (you can also get the list every Friday morning online). We would drive by the property and call him if we wanted to see the inside. After 3 months of looking, we found a great house in a fabulous neighborhood. We put in a bid, but didn't think we would get the property. We thought it would sell for 3-5 thousand dollars more than we could afford to offer. Two days later we found that we had won the bid by $243.00. Escrow closes in 2 days! We have a great house, a payment we can afford and have "instant" equity. The house next door, which is slightly smaller, is priced $12,000.00 more than we paid! H.U.D. is a federal program and is available everywhere. If you check their website, you can go to a class to get the $100.00 down-payment certificate if you cannot get one at a local home show or fair. Our down-payment was $100.00 and we asked H.U.D. to pay for our closing costs. To move in we will need a total of $350.00 cash. Get a great realtor, get pre-approved with a lender to know how much you can afford and shop around.
Allison
Bank Repo
I purchased a foreclosed home about a year ago. What I learned is that in my
case, the bank would not negotiate a price for 60 days following the listing.
If you want to wait and risk not getting the house, that is an option. I also
had a pre-approved mortgage though a mortgage company, I don't think that it
made any difference to them what kind of house I bought as long as it passed
the inspection. Be prepared to deal with some cosmetic damage, like switch
plates and light fixtures missing. In my case, the house had been left
vacant, and the pipes had burst. Be firm in insisting that this kind of
damage be repaired BEFORE you close on the house. The cosmetic things you
will probably have to take care of yourself. A little time at the local
town hall can also be beneficial, in checking out how much comparable homes in
the area have sold for, then you will know whether you are getting a bargain.
Robin
Watch the Title
My husband and I bought one of these. We found a realtor in the area who
specialized in them. My husband was helping out a friend by looking to see
what it would cost to fix this terrible house in a terrific neighborhood. It
was way over the friends head (he's not very handy) but it was the perfect
house for us. It was a little more than we could afford at the time but
after several more contracts had fallen through the price went down by about
$4,000. We knew it was time for us to put in a bid (someone else had a bid
on it when we put ours in). The other contract fell through and we got the
house. Yea!
Since it was a VA forclosure we got a VA loan. The closing was way too easy.
We did everything in the kitchen of our soon to be new house. We had a very
low down payment also. One thing that we didn't do (the VA doesn't do any of
these things) is get a title search. MAKE SURE YOU DO! We weren't very well
informed and several years later when we wanted to get a home equity loan
(we had already built up about $11,000 in the value of the home) we couldn't
get it because we didn't have the title search. Our realtor told us that the
VA wouldn't be able to take it over if there was a title problem. But now
it's our problem. So we have to get one and hope there is not a problem!
Our experience has been a good one. We have done a lot of work to our home
and have made a great investment. Our neighbors are wonderful and there is
really nowhere else I would want to live. We couldn't have afforded half of
our house if it were not a forclosure.
Cathy P.
Beware of Liens
We live in a
good-sized southern city, and here there is an auction every day at the
courthouse of foreclosed properties. She might want to start by
checking her own courthouse about property auctions to see if they do
something similar.
There are two important warnings I want to pass on, however, to anyone
interested in foreclosed properties:
#1...many of these homes have IRS or other government liens on them. If
you buy a house with liens, they become YOUR problem. They are not
cancelled when a property goes into foreclosure. You can research
whether a property has liens on it at the courthouse; sometimes people
do this full-time and sell the information in book form (you'd get a
"catalog" of upcoming auctions and tax deed sales, including lien
information). You might be able to hook up with someone like that at a
property auction.
#2: These homes are not always "super deals." Some are terribly
neglected and damaged, others may be owned by banks not willing to
negotiate much of a price cut.
I recommend ordering both an appraisal and a home inspection (they are
two different things) on any home you're seriously considering. Both
cost money, yes. But an appraisal by a licensed real estate appraiser
gives you the true market value of your home, so you will know if what
you're buying really is a "bargain." And a home inspection will give
you a detailed report of all defects in the home, so you'll know whether
you're looking at major repair expenses.
Anna B.
Different Kinds of Repo
All repos are not equal. A bank repo is different
from a HUD or a VA repo. Sometimes, by calling a bank they can give you a
list of their repos -- however -- where I live banks list their homes with
Realtors. HUD & VA homes can be found on the internet but to buy one you
will need to use a Realtor -- I suggest one who has experience in these
fields. Most of the time utilities are not on making home inspections
difficult. This does not mean that repos are bad buys. Some can be very
good needing only cosmetics. Use your eyes to do a good visual inspection.
Tell tale signs of water spots on ceiling (roof trouble), water spots under
sinks, signs of termites, etc can be seen. Buying a repo can be a very good
experience with a little know how and caution. Each area is different so it
also depends where you live. Happy house hunting!!
Linda
HUD Web Site
www.hud.org gives the listing of all home available through HUD. A little more paperwork than normal in buying a home, it is a plus to have
great credit, it take 45 days to close after HUD has accepted your bid.
All the instructions are available at HUD.
Shelly
Remember, It's Sold "As Is"
We purchased a reposessed house this summer when my husband was transferred
from OK to GA. We got a good deal. From our calculations, the house was
undervalued at least 25%. The government (loan holder) was eager to sell,
as each month that passes they lose more money. They did negotioate a
little bit on the price, but not much. The big disadvantage is that the
house was sold "AS IS", and they would not negotioate at all for repairs.
There were A LOT of things obviously wrong with the house (holes in wall,
water heater non functioning, rotted floor, holes in kitchen floor, holes in
roof, dead bird in hole in wall, etc.) We kept out money for repairs, but
underestimated. And after living in the house for a couple of months have
found more problems (shower pan leaks, lights that don't work, garage door
openner that does not open, etc.) We still feel that this house was a
steal, and we stand to make a tidy profit when we sell. My advise, make
sure you have enough money to fix things! When someone loses their house,
they probably have not had money to keep things in good repair while they
were living in it.
Dee W. of Milledgeville , GA
Gary
Foreman is a former financial planner and the editor of The Dollar Stretcher.com
website. If you'd like more time or money, visit The DollarStretcher.com
to find hundreds of ways to stretch your day and your dollar!
