How Long Do People Have Before Foreclosure Looms
After a certain number of months of not paying the mortgage, lenders can begin foreclosure procedures if no agreement can be made. That means that the first public notice will be in the form of a Notice of Default. This is a public record, and thats how people find out about pre-foreclosure homes.
The timespan of how many days a homeowner has before the proceedings begin varies from bank to bank. But new laws after the housing collapse give people a standard of 120 days.
During this whole time, hopefully, lenders are talking to the homeowners. They want to help them get on track again, Blomquist says.
It varies from state to state after the notice of default of when the home will go up for public auction. Texas has the shortest time and can be as quick as one month. New York and New Jersey have the longest period of six months to a year.
However, those are averages. Those auctions can be postponed many times, he says.
Can You Finance A Pre
Yes, you can get a loan for a pre-foreclosure but if there is competition for the house it will likely go to the the cash buyer first.
Bloomquiest recommends getting prequalified for a loan before ever making an offer. Youll then know how much you can afford for the house and for any repairs.
Banks are always happy to give loans on properties even if they arent listed for sale, he explains.
Lee Nelson
MyMortgageInsider.com Contributor
What Are The Cons Of Buying A Bank
While there are potential advantages to buying this kind of property, there are also pitfalls to be aware of and avoid.
Although you might hope to get a bargain in an REO sale, theres no guarantee that youre going to get a great deal. So youll want to confirm that the price is fair. Order your own appraisal or at least get your agent to run a comparative market analysis for you.
The bank isnt going to repair very much before it sells. The property will be sold in livable condition but of course what makes a house unlivable is pretty extreme, so livable is merely a relative term that may still translate to a ton of work for the buyer .
Remember that the REO house will be sold in as-is condition you wont be able to request repairs. Get an inspection contingency so you can get out of the deal if there are serious issues that the bank missed. And youll want to do title research and get title insurance to protect yourself.
You do want to get a good inspector, and of course, the title insurance will make sure all the taxes are paid up and current and there are no liens on the property, Stewart says.
It gets a little tricky, she adds, in reference to another bank-owned property that interested her. On this particular house, there was a first lien and a second lien. The second lien-holder was originally going to be the one to foreclose.
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Bid Higher If Other Foreclosures Are Selling Quickly
When a foreclosure comes on the market there is frequently high competition, so be prepared to bid fast and high. Theres no exact formula on what the banks bottom line will be, so if foreclosed homes in your area are selling quickly, its important to work with your agent to craft a strong offer, backed up by your preapproval letter if obtaining a mortgage. In many instances, foreclosures are already discounted, so an offer thats too low might be a non-starter for the bank.
Keep in mind that the type of house and location matter, and some homes might sell faster than others. In competitive markets, you might need to offer asking price and keep contingencies to a minimum.
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How To Find A Foreclosed Home
The first challenge is finding foreclosed homes near you. To help in your hunt, try these tips:
- Enlist the help of a real estate agent who is experienced with foreclosure purchases
- Check in with your county. County offices may post current foreclosure listings and weekly sales
- Scour bank websites. Bank-owned properties for sale are often posted online
- Search for homes for sale through the Department of Housing and Urban Development
- Check out online auction websites like Auction.com, Xome.com, and Hubzu.com
Unless youve bought a foreclosed home before, wed recommend speaking with a professional before doing so. It can be a very complicated process to navigate.
Thats especially for a zombie properties, which will likely still have documentation in the previous owners name.
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What Are Foreclosures And Reo Properties
Banks own real estate because they have acquired the properties through foreclosure. A foreclosure occurs when a homeowner is unable or refuses to pay their mortgage payments. When that happens, the lender that backed the mortgage repossesses the home, since the property is collateral for the loan.
Once repossessed, the lendertypically a bankwill auction off the property in hopes of recouping the losses it incurred when the homeowner missed payments. If the home fails to sell in the auction, it goes on the bank’s books and is referred to as a “real estate owned” property. A home may fail to sell because no one showed up to bid the minimum amount of the existing mortgage or because the bank started the minimum bid so high that no one would touch it.
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How To Buy Foreclosed Homes
- Find a Foreclosed Home
- Renovate the Property
Most homeowners do not own their property outright, but have taken out a mortgage loan from a traditional banking institution to pay for it. In return, the homeowner must make their monthly mortgage payment. If several monthly payments go missed, the bank or lender will likely initiate foreclosure proceedings and collect the property as collateral. In most cases, the bank or lender is not interested in keeping the property and paying to maintain it. So, they will attempt to unload the property to a willing buyer at a foreclosure auction.
A home auction is a great way for a real estate investor to get a steeply discounted piece of property, making the margin for profit more alluring. Typically, investors will buy a foreclosed property unloaded at a fraction of its potential value, fix up the home, and put it back on the market to make capital gains. Though home flipping is a common investment goal with foreclosed properties, renovating a foreclosed home into a rental property is also a lucrative long-term investment.
Homebuyer Assistance Programs Offer Forgivable Loans Help With Renovations
Foreclosure properties are often in such disrepair that they can be tough to offload to buyers, but certain programs that can make them more enticingand more affordable.
Some cities offer homebuyer assistance programs to those who are willing to invest in the purchase and renovation of city-owned foreclosures. These types of programs come with a wide range of incentives, including forgivable loans and free money for home renovations and updates to the properties. These programs, which are more common in areas with high rates of distressed or foreclosed properties, serve as tempting incentives for buyers and can represent major elements of revitalizing neighborhoods.
Olivier Le Queinec // Shutterstock
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Negotiating Tips For Buying A Bank
Once you’ve located some listings of interest and found yourself a buyer’s agent, you’re ready to move to the next step: contacting the bank.
If the home listing is relatively new to the market, it is possible the bank will not deviate much from its asking price. You will have greater negotiating power if you make offers on homes that have been on the market for more than 30 days.
If you are aiming for a certain price that would make the REO a great deal, don’t be afraid to ask for it. You have substantial leverage. On top of the property being foreclosed on, it failed to sell at the auction. The representative or agent you are dealing with is there to get the sale done.
During this process, you should expect the following:
- An as-is purchase: You will likely be asked to buy the home “as is,” and it may or may not be in good shape. Make your offer subject to a home inspection.
- A waiting game: You could find yourself waiting a while when dealing with the bank. After prequalifying for a loan, you might be kept waiting for 10 days for the bank to respond to your offer. If the bank won’t budge, and you receive an offer rejection, wait another 30 days and then resubmit your original offer.
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If youre wondering how to buy a foreclosed home, consider this your primer.
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Is Now A Good Time To Buy A Foreclosed Home
The moratorium on foreclosures due to the COVID-19 pandemic ended on July 31, 2021. Investors predicted a wave of foreclosures when the moratorium ended but so far there is no evidence that has occurred.
People looking to buy foreclosures in today’s market should expect to find a limited supply and competition on most deals.
A Note About Purchasing Through Short Sale
A short sale occurs when the homeowner sells a home for less than what they owe on the mortgage because the value has declined. Foreclosure has not been completed with a home up for short sale. The homeowner still owns the home so you work through their REALTOR®.
When you buy a home in a short sale, the lender needs to approve your offer. You might spend a lot of time waiting for approval.
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Financing A Foreclosure: What Kind Of Loan Can I Use
If your dream foreclosure is in livable condition, and lenders consider you a good risk, you may qualify for a conventional loan. Financing problem solved.
However, if the house requires heavy-duty TLC, an FHA 203k rehab loan may be your best option.
The FHA 203k loan allows you to borrow for both the home purchase and repair costs using just one loan.
Because these loans are guaranteed by the Federal Housing Administration, its easier to get approved, even with a credit score as low as 580. The minimum down payment is just 3.5%.
However, these relaxed financial standards are offset by strict eligibility guidelines. The house must be a primary residence, and renovations cant include anything the FHA deems a luxury.
Fannie Mae offers a similar home purchase and renovation loan: the Fannie Mae HomeStyle program. Compared to the 203k loan, its eligibility and costs are more palatable. However, it has stricter down payment and credit score criteria.
Because of the paperwork involved, and a requirement that you use only licensed contractors, neither type of loan is suitable for minor repair projects.
Although foreclosed homes are not as abundant or inexpensive as they once were, good deals can still be found. You simply need to know where to look or hire someone who does.
Just be prepared to strike the moment you uncover a real bargain.
Look At Comps To Determine What To Offer
Finding the right price to offer is as much an art as it is a science. Your agent can run a comparative market analysis , which helps you understand recent sale prices of comparable properties, or comps.
Soffee says he runs a CMA from the last 180 days and evaluates several factors, including the pace of home sales, tax assessment history and a deeper analysis of similar properties nearby that have recently sold.
If youre up against cash offers, knowing this information can help ensure your offer is a competitive one. Your lender will require an appraisal to assess the homes value, so keep that in mind when making your offer, as well. If theres a shortfall between your offer and the homes appraised value, you might have to make up the difference in price if the bank doesnt budge.
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What Are Reo Properties
Real estate owned properties, or REO properties, are houses that have been seized by banks or other lenders from people who are unable to pay their mortgages. Essentially, its a foreclosure that has been seized by the bank. When real estate lenders offer mortgage loans, they see them as an investment, because they will earn money from the interest on the loan. So to salvage their investment, banks foreclose on homes with unpaid mortgages and sell the properties at a foreclosure auction. If a home doesnt sell at auction, it becomes an REO. Theres a subset of REO properties that are owned by the government. They are called Hud houses, and they often sell well below to eligible participants.
Differences Between A Typical Real Estate Transaction And The Purchase Of An Reo Property
Negotiating the purchase price of a foreclosed home may take a little longer than a typical real estate transaction because the process may require multiple levels of approval. First, the bank will have to approve the offer. In some cases, an investor may own the property and will have to provide approval as well.
Pricing for a foreclosed home is typically set at market value in an effort to move the property quickly. You will want to submit a fair and reasonable offer, as most banks will list properties at a fair price.
There are several considerations to keep in mind when purchasing an REO Property:
-
Unknown property condition
- Given that the bank has not maintained or had first-hand knowledge of the foreclosed home prior to acquisition, there may be no record of property repairs or maintenance that would assess the true property condition. As a result, the bank is often unable to verify the condition of the property or complete a Sellers Disclosure.
- Buyers are allowed and encouraged to complete professional home inspections on the property.
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How Do I Get Started If I Want To Consider A Bank
There are online tips and tools available to help you find bank-owned homes. But the best way to get started is to talk to a real estate agent in your area who has helped other buyers in your shoes.
Sometimes if a bargain seems too good to be true, then it may very well be, Stewart says. But if buyers have a decent Realtor, they should be protected.
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How Can You Find A Pre
First of all, these are not properties advertised for sale, usually. Once the Notice of Default is written up, it is recorded at the county recorders office.
Notice of Defaults also can be issued for failure to pay property taxes or HOAs , Blomquist says.
He says that you can go to a county recorders office to look for these notices of default. An easier way is to find the information online. His own company along with other local and nationwide businesses offer lists of pre-foreclosure properties for a subscription-based fee.
We go and do that legwork for you. We are at county offices every day collecting these records, he says.
What he is seeing in the industry are companies such as Open Door and Offer Pad being more proactive and allowing homeowners in the pre-foreclosure period to come to them to get a cash offer.
You type in your address, and they will give you at least an all-cash offer within three days. Not everyone that goes to them will be in pre-foreclosure, he says.
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