Buying a Foreclosed Home Doesn’t Have to Be Scary

May 6th, 2013 by Hudson & Marshall

While foreclosures vary in regulations and procedures compared to privately-owned homes, buying one doesn’t have to be as scary as a trip to a haunted house. There are many advantages to buying a foreclosed home, and knowing the process is key.

The Process

A foreclosure is the process of taking possession of a mortgage property because of someone’s failure to keep up with mortgage payments. This is termed as “defaulting” on a mortgage. It can be a lengthy process and specifics vary from state to state. If the default is not resolved by the allotted deadline, the lender then sets a date for the home to be sold at a foreclosure auction. At this auction, the home is sold to the highest bidder for cash payment. If a third party does not purchase the property at the foreclosure auction, the lender takes ownership of the property, and it becomes a bank-owned or real estate-owned (REO) property.

Buying a Banked-owned/REO Property

Like any other home, it is recommended for buyers to view the foreclosed property prior to bidding at an auction. It is also recommended to find a knowledgeable real estate agent who can help buyers understand the benefits and costs related to foreclosed homes. Bank-owned/REO properties can often be found on real estate service websites such as the Multiple Listing Service, bank websites and through online specialists such as Hudson & Marshall. For instance, buyers can find properties in their area on the Hudson & Marshall website in multiple ways including the online auction schedule and state search map for free. Other foreclosure listing services may charge a fee.

Many bank-owned/REO properties are sold “as-is” with no warranties. Therefore, there is no guarantee it will be a bargain. It is highly recommended to get an independent appraisal to determine any home’s true market value as well as hire a professional to inspect the home before committing to a purchase. Most properties being sold at a real estate auction will open for inspection with specific dates and times. However, some may be shown by appointment only. Buyers should organize with the lenders for inspection opportunities.

Quick Tips

Find a buddy: Haunted houses are less scary when someone is holding your hand. Find a real estate agent knowledgeable about the foreclosure market. Whether a buyer is looking at a pre-foreclosure, bank-owned property or short sale, having a professional guide will be most helpful, but it’s not required. Also, remember real estate agents are not lawyers. For legal advice, it is best to consult a local real estate attorney who understands how these types of purchases work.

Be knowledgeable: Before bidding, be sure to set a spending limit, know the neighborhood the home is located in and understand the foreclosure process. Don’t rely solely on the real estate agent’s expertise; do some homework, too.

Inspect, inspect, inspect: To ensure the quality of the home, visit the home prior to bidding and be involved in the inspection process. Be sure to ask questions and take notes.

Get a title search: A buyer can find any red flags attached to the home by requesting a title search of the property records. A foreclosure on a home does not automatically remove any title issues or risks to the new home owner.

Foreclosures aren’t so scary after all! While purchasing a foreclosed home requires a few more steps than traditional home sales, if the price is right, the money saved could be well worth the time invested.

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