Buying a Foreclosed Home Doesn’t Have to Be ScaryMay 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.
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.
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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