Investing In Real Estate

RE/MAX Real Estate FAQ - Buying Your Home, Working With A Real Estate Agent

Investing In Real Estate - Questions and Answers
'Foreclosures'

Should I consider buying foreclosure properties?
What are problems buying foreclosures?
What types of foreclosure are there?
What happens at a trustee sale?
What about buying a foreclosure "as is"?
How do you get financing for a foreclosure?
Where can you find foreclosures?
How do you find government-repossessed homes?
Where do I learn about HUD foreclosures?
Can I get a HUD home for as little as $100 down?
Do you have to buy HUD homes through a realty agent?
Where do I learn about VA foreclosures?
Where do I learn about Fannie Mae foreclosures?
Does Freddie Mac have foreclosures for sale?
Where do I find seized or acquired IRS properties?
What do you think of get-rich-quick real estate schemes?

Should I consider buying foreclosure properties?

A foreclosure property is a home that has been repossessed by the lender because the owners failed to pay the mortgage. Thousands of homes end up in foreclosure every year. Economic conditions affect the number of foreclosures, too. Many people lose their homes due to job loss, credit problems or unexpected expenses.

It is wise to be cautious when considering a foreclosure. Many experts, in fact, advise inexperienced buyers to hire an expert to take them through the process. It is important to have the house thoroughly inspected and to be sure that any liens, undisclosed mortgages or court judgments are cleared or at least disclosed.

What are problems buying foreclosures?

Buying directly at a legal foreclosure sale is risky and dangerous. It is strictly caveat emptor ("Let the buyer beware").

The process has many disadvantages:

There is no financing; you need cash and lots of it.
The title needs to be checked before the purchase or the buyer could buy a seriously deficient title.
The property's condition is not well known and an interior inspection of the property may not be possible before the sale, says James I. Wiedemer, author of "The Smart Money Guide Bargain Homes, How to Find and Buy Foreclosures," Dearborn Financial Publishing, Chicago, 1994.
A home in foreclosure is most often vacant. Lack of maintenance in vacant homes promotes a variety of problems and overall deterioration. Poor ventilation in closed-up homes lead to moisture problems and it's associated mold infestation. Plumbing problems due to drying gaskets, shrinking connections, leaking valves or freezing pipes are all too common in foreclosed homes.
In addition, only estate (probate) and foreclosure sales are exempt from some states disclosure laws. In both cases, the law protects the seller (usually an heir or financial institution) who has recently acquired the property through adverse circumstances and may have little or no direct information about it.

What types of foreclosure are there?

Judicial foreclosure action is a proceeding in which a mortgagee, a trustee or another lien holder on property requests a court-supervised sale of the property to cover the unpaid balance of a delinquent debt.
Non-judicial foreclosure is the process of selling real property under a power of sale in a mortgage or deed of trust that is in default. In such a foreclosure, however, the lender is unable to obtain a deficiency judgment, which makes some title insurance companies reluctant to issue a policy.

What happens at a trustee sale?

Trustee sales are advertised in advance and require an all-cash bid. The sale is usually conducted by a sheriff, a constable or lawyer acting as trustee. This kind of sale, which usually attracts savvy investors, is not for the novice. In a trustee sale, the lender who holds the first loan on the property starts the bidding at the amount of the loan being foreclosed. Successful bidders receive a trustee's deed.

What about buying a foreclosure "as is"?

Usually, you will have no choice in the matter, therefore buying a foreclosure property is always risky, especially for the novice. Usually, you buy a foreclosure property "as is", which means there is no warranty implied for the condition of the property (in other words, you can't go back to the seller for repairs). Contracts on REO properties will usually protect and hold the seller harmless from any liability as to the condition of the home, and any miserable surprises that you find after the sale are yours alone.

The condition of foreclosure properties is usually not known in the case a judicial foreclosure, because a thorough inspection of the interior of the house may not be possible before the sale. In addition, there may be problems with the title, though that is something you can check out before the purchase.

If you are new to foreclosures it is far safer to look to REO (Real Estate Owned) properties, where you can at least inspect the property and even bring in a professional home inspector (usually before you make the offer since most REOs will not accept an inspection contingency). You cannot expect the bank who owns the REO to make any repairs whatsoever.

How do you get financing for a foreclosure?

One reason there are few bidders at judicial foreclosure sales is that it is difficult (although not impossible) to get financing for such a property because the condition of the home either isn't known or won't qualify. You generally need to show up with cash, or a line of credit with your bank from which you can draw cashier's checks.

It will generally be far easier to purchase the home after the mortgage lender has taken possession of the home and markets the home through a REALTOR. The property is now called an REO (real estate owned) property. You will pay more for REO properties in most cases, but financing will not be such a hurdle. You will also have a better opportunity to assess the condition of the property.

Where can you find foreclosures?

In most jurisdictions, a judicial foreclosure notice must be published in the legal notices section of a local newspaper where the property is located or in the nearest city. Also, foreclosure notices are usually posted on the property itself and somewhere in the city where the sale is to take place.

In the Mahoning Valley contact the Sheriff's office of the county in which the auction is to take place.

When a homeowner is late 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 financial institution that has initiated foreclosure proceedings usually will set the bid price at the loan amount.

Despite these seemingly straightforward rules, buying foreclosures is not as easy as it may sound. Sophisticated investors use the technique - so novices may find themselves among stiff competition.

Once the home becomes an REO property it will usually be listed with a REALTOR. These can be found online at many sites with MLS listings. A convenient collection of foreclosed home on-line search sites including remax.com and HUD can be found here.

Resources:

Search Government Foreclosures >>

How do you find government-repossessed homes?

The U.S. Department of Housing and Urban Developmentt acquires properties from lenders who foreclose on mortgages insured by HUD. These properties are available for sale to both homeowner-occupants and investors.

You can only purchase HUD-owned properties through a licensed real estate broker. HUD will pay the broker's commission up to 6 percent of the sales price.

Down payments vary depending on whether the property is eligible for FHA insurance. If not, payments range from the conventional market's 5 to 20 percent.

One caution. HUD homes are sold "as is," meaning limited repairs have been made made but no structural or mechanical warranties are implied.

RE/MAX Valley Real Estate is certified to sell HUD homes in Ohio. For more information call 330-629-9200.

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