Safe Buying of Foreclosed Property
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Buying foreclosed property is mostly the turf of investors looking to purchase properties at below-market-value prices and then selling it for a profit. Right now it is said that a home goes into foreclosure every eight seconds, so there has never been a better time to consider one. The current market conditions make it a perfect time for a small investor to purchase one or more foreclosure properties for their private residence, rental or resale. But you should take the time to understand and investigate all avenues of this life decision. After all, buying a home is the largest and most important investment most people make in their lives.
Pre-foreclosure sale
Many owners of homes that go into foreclosure have been struggling financially for almost a year before they give up, which usually means that the house has not received needed repairs or general maintenance for a while. Pre-foreclosure is like a grace period. The homeowner is being warned that they’re in default and need to do something about it, but at this point, the lender is unable to claim back the property and sell it to recoup their costs. The length of the grace period varies, as it’s determined by state laws. This is often a good time for an investor to approach the homeowner with a fair offer to purchase the property.
Bank-owned properties
A foreclosure takes place when a homeowner or property owner cannot pay the mortgage fees on the property and is forced to give up the land to pay back what is owed. Bank-owned properties offer the safest deal for inexperienced foreclosure buyers. The lender might offer to finance the property at a below-market rate or with a lower-than-usual down payment. In most situations a bank will be looking for a quick sale, and as such will offer many incentives and benefits to prospective buyers. In order to purchase a property in a foreclosure sale, the buyer must have a cashier’s check in hand for the full amount of the bid. If the buyers is successful then they will be offered the house in its ‘as is’ condition. Foreclosure homes bought in good areas at below market values that appreciate annually can be a sound investment strategy for many investors.
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Tips for Safe Buying of Foreclosed Property
Buying property in a pre-foreclosure stage may offer the best bargains, but it’s also the most difficult. Bank-owned properties offer the safest deal for inexperienced foreclosure buyers. In most situations a bank will be looking for a quick sale, and as such will offer many incentives and benefits to prospective buyers. Renovations to the foreclosed property appreciate its value and your profit margins can be huge when selling them. If you are a risk taker, a foreclosure or even a short sale could be right for you. Some useful tips for safe buying foreclosed property are following.
- Locate properties: Locate properties scheduled for foreclosure sales by checking classified newspaper ads for listings under Foreclosure Notices. Once a home has been located, search public records. Look for liens on the property, since they can drive up the purchase price. Notify local real estate agents or lender and attorneys that you’re interested in purchasing foreclosed properties.
- Determine the property condition: Many homeowners stop taking care of the property when they realize they will be losing the home. Inspect the foreclosed property to determine its condition and market value. . If you don’t inspect yourself, or appoint a qualified advisor to do so, you could end up spending more on repair and maintenance of the property.
- Ascertain market-value price: For the right buyer, foreclosures are an excellent opportunity to buy a house at a lower than market-value price. Know how much you are willing to spend and stick to it. Go to two or more auctions to get a feel of the market and to know the procedure of buying foreclosed property.
- Hidden foreclosures: Hidden foreclosures are made up of new mid- and upscale homes that were freshly built and the construction-loan period expired without those homes being purchased. Hidden foreclosures are called such because the lack of promotion makes them less likely to appear on national multiple listing sites. Like other bank owned properties, professional real estate agents will be in charge of handling the sales deal. If you find a hidden foreclosure, make sure you follow all the necessary steps for ensuring you are going to buy the property safely.
- Read Bank Owned Addendum: A bank owned home addendum is a legal document attached to a purchase and sale agreement by almost all banks when selling Real Estate Owned (REO) properties. The bank’s addendum will be written by their attorney and is a contract that is used on all purchase and sale agreements. Therefore the entire addendum will be nonnegotiable. Once you have agreed to all of the bank’s terms and signed off on their addendums, your buyer’s agent will return the signed addendums to the listing agent who will fax them to the bank’s REO department. The entire process of purchasing a bank owned property will probably take about two months. Once everything is done and you have the keys in your hand.
If you can find a way to get to the homeowners before their foreclosure is finalized, then it is possible to pick up the home at a fraction of the price it will be offered to the public. It must be understood, that there could be liens on these properties from taxes or other claims, so you must do your research. These homes are often times in need of many repairs that you as the buyer will have to do. Most foreclosed homes aren’t much damaged. Renovations to the home appreciate its value and your profit margins can be huge.
