If The Field Service Company Leaves A Notice Call Them
The field service company might post a notice that it has deemed your property vacant before locking you out or taking other actions. Be sure to call the company and let it know that you’re still living at the property. It is also a good idea to send a letterâagain, via certified mail, return receipt requestedâto prove that you’ve notified the company of your occupancy.
Financing Options For Foreclosed Homes
Private lenders tend to be skittish about financing foreclosure deals. However, several government-sponsored financing options are available for those who qualify:
- 203 loans from the Federal Housing Administration ,
- Fannie Maes HomePath ReadyBuyer program,
- The HomeSteps program through Freddie Mac.
Research The Different Methods For Buying A Foreclosure
As with any major purchase, the first step in purchasing a foreclosed house is research. Thats because there are several different ways to buy a foreclosure, and the best method for you may vary depending on your needs.
Here are the most common purchase paths to consider.
Buying From The Homeowner
A pre-foreclosure, or short sale, can occur when the homeowner still owns the property and knows theres a potential for foreclosure. Owners want to sell their home before they end up in foreclosure. This means that short sales arent technically foreclosure sales.
Short sales can also prove to be challenging. In a short sale, owners get permission from their lender to sell their residences for less than what they owe on their mortgage. If the owners owe $180,000 on their mortgage, they might still list the home at $160,000 even though such a sale leaves them $20,000 short of being able to pay off their entire mortgage loan.
In some short sales, the owners bank agrees to take this loss as a way to get the home sold and the mortgage off their books.
The goal for the owners is to offer their home at a price thats low enough to ensure a quick sale before they fall behind on their monthly payments. Buying at this stage can be tough, though. Even if the sellers agree to your offer, their bank or lender might reject it if its too low.
Buying At An Auction
There are also plenty of risks:
Buying From The Bank
Buying A Government-Owned Property
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Cons Of Reo Properties
- REO properties are sold as-is: Lenders with REO properties are attempting to minimize their losses. That means they wonât invest anything in fixing up a property before selling it. You have to agree to buy the property as-is, meaning there could be expensive repairs or hidden damage that youâll need to pay. Thatâs why getting an inspection is so important. You donât want to discover water damage or a termite infestation after the sale goes through.
- There could be other hidden costs: Aside from general repairs and upgrades that may be needed, there could be other costly issues. For instance, it could turn out that there is a lien against the property. You can buy title insurance to avoid this issue, but thatâs one more expense that can eat into your budget.
What Is A Family Trust And How Do You Set One Up
Trusts are used to manage estate taxes, shelter assets from creditors and pass on wealth to future generations. A family trust is a specific type of trust that families can use to create a financial legacy for years to come. There are several benefits to creating one, including ensuring your family members receive your wealth and avoiding public disclosure of trust assets. However, not every family necessarily needs a family trust, as there are other options too. If you have questions about your familys situation, consider speaking with a financial advisor.
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The Bottom Line: Consider Purchasing A Foreclosed Home
If youve dreamt of making the move to homeownership but your budget is tight, buying a foreclosed home might be the right choice for you. Its possible to find foreclosed homes that are being offered at below-market rates.
Again, dont rush into this decision. Its best to work with a real estate agent who can explain both the pros and cons of buying a foreclosed home in your community. And before you make an offer, be aware of the additional risk you might be taking on when you dip into the foreclosure market.
Already on the search for a foreclosed home to purchase? If youre not sure how to budget for a mortgage, use our mortgage calculator to estimate how much principal and interest youll pay each month.
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Taking Possession Of The Property After The Sale
If the previous owner refuses to vacate the property after the sale, the new owner may need to file an eviction case against them in court in order to take possession of the property. See the Eviction page of our Landlord/Tenant research guide to learn more about this process.
For tenants who may be living in a home affected by foreclosure, see the Tenant Rights in a Foreclosure page of this guide for information on your rights during the foreclosure process.
- An article from legal self-help publisher Nolo on eviction procedures after a foreclosure.
Find An Experienced Real Estate Agent
Foreclosures can be difficult to find and price, so try to work with a real estate agent that specializes in them. An agent who is knowledgeable about the foreclosure process can represent your interests and keep the transaction moving. One strategy for finding the right agent is to visit websites with a database of foreclosed homes in your desired area. Look for Realtors who have specialized real estate training in this area, such as the Certified Distressed Property Expert or the Short Sales and Foreclosure Resource designations.
Buyers can also work directly with the banks real estate agent instead of using a buyers agent to save on the commission split. This can be a risk, though: Buyers feel more secure when they are represented, Soffee says.
Your agent can guide you through various types of distressed sales. These include:
- Preforeclosures, in which a buyer bails out a seller before the bank takes the property
- Short sales, in which the borrower owes more than the home is worth and the bank agrees to forgive some of the debt
- Public auctions, in which bidders have a chance to make offers on foreclosed properties at the local courthouse
- Bank-owned homes, which belong to the lender
Bank Owned Homes Find Bank Owned Homes For Sale In Your Area
If youre in the market for a great deal on a home, a bank-owned home could be just the thing for you! With First Bank, you can easily search through a list of our bank-owned properties for sale. Bank-owned properties typically make great investments for first-time home buyers or for new business opportunities.
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Make A Competitive Purchase Offer
If the home is in pre-foreclosure, your real estate agent will need to present the offer to the individual who currently owns the home.
If youre looking at a foreclosed home thats headed to auction, youll need to contact the trustee or attorney whos running the auction to ask any questions about the house before the auction takes place.
A trustee is a third party who runs a foreclosure auction on behalf of a lender or government agency. This official accepts the bids during an auction.
If the house is REO, your agent will present your offer directly to the banks listing agent.
A buyers agent will never have direct contact with the bank. The process is similar for government-owned listings: Your real estate agent will again present your offer directly to the government agency listing the home.
You might be tempted to make a low offer on a foreclosed home. Its true that foreclosed properties often sell for less than traditional homes. But if you make an offer thats too far below , the sellers might reject it.
Its important, then, to work with your real estate agent to make a competitive offer. Your agent will advise you on what this figure should be.
You should also include a contingency for a home inspection in your offer. This contingency says that the home sale cant be finalized until youve scheduled a home inspection of the property.
Trustee’s Role In A Foreclosure
Depending on state law, a trustee might be an individual, like an attorney, or a business entity, like a bank or a title company. Sometimes, state law limits who may act as a trustee in specific ways. For example, in Washington, foreclosure trustees must have a physical presence in the state by maintaining an office in the state with telephone service at such address.
A Trustee has Many Duties in a Foreclosure, But Verifying the Validity of the Loan Assignment Isn’t One of Them
In an opinion from California’s Fourth Appellate District ), the court decided that the trustee’s duties did not include verifying that an assignment of the loan used in the foreclosure was valid. The court noted that a trustee under a deed of trust “is not a true trustee with fiduciary obligations, but acts merely as an agent for the borrower-trustor and lender-beneficiary.” Generally, a trustee’s duties include only those needed to administer the foreclosure after a borrower’s default.
The trustee comes into play if you fall behind in loan payments and go into foreclosure. Again, in states where lenders use deeds of trust or a similar instrument containing a power of sale clause, a lender may foreclose out of court in a process called a nonjudicial foreclosure. A trustee typically manages the nonjudicial foreclosure process.
Distribution Of Excess Funds
After the foreclosure sale, if the property sells for a higher price than what is owed, the excess funds would then be used to pay off any additional liens that may be on the property. If no other liens exist, or if there are additional funds after the junior liens have been paid, the rest of the funds may be available to the former homeowner.
The clerk of the court will notify the former homeowner if there are any excess funds. The homeowner then has two years from the date of the sale to claim them.
Ways To Defend Against Foreclosure On A Deed Of Trust
Foreclosure is the process by which a lender retakes real estate when a borrower defaults on a home loan. In states that allow the use of a deed of trust as opposed to a mortgage agreement, most homes are foreclosed through a process called non-judicial foreclosure. Non-judicial foreclosure, as the name implies, occurs outside of the court system, and is usually much faster and cheaper than judicial foreclosure.
In general, defending against non-judicial foreclosure in court is difficult because you usually must show the court that youll be able to afford to pay off the loan if it is reinstated. This article assumes that you have already sought forbearance on the loan, which allows you to reduce your payments for a period of time until you can start paying in full.
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Advantages Of Buying A Bank
Bank-owned homes give real estate investors and homebuyers opportunities that are not available in the pre-foreclosure and auction phase of the foreclosure process.
Some other advantages of buying bank-owned homes include:
- Bank-owned properties are typically cheaper than newer homes and often offer great terms like low down payments and low interest rates.
- Buying bank-owned homes can involve less risk and less competition than traditional markets.
- Bank-owned properties are typically clear of any liens against the property.
- The bank that owns the foreclosed property is usually the mortgage lender, so it might be easier to negotiate closing costs.
- Bank owned properties are typically vacant, which can save you from having to evict its current residents.
For more information on bank owned homes, check out our article on how to shop for bank-owned properties.
Consider Hiring A Buyers Agent
You donât need your own agent to buy REO property, but it might save you some time and stress to have someone negotiating with banks on your behalf. A buyerâs agent will do just that. Plus, they have a fiduciary responsibility to advocate for your best interests. Even better, the seller typically pays the buyerâs agent, so thereâs no additional cost for you to hire one. Ideally, you should work with an agent who has experience dealing with REO properties.
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What Are Reo Properties
Real estate-owned propertyâalso called bank-owned propertyâis when a lender or government entity, such as Fannie Mae or Freddie Mac, owns the property rather than an individual or business. There are a handful of situations where this can happen.
Often, a bank or other institution becomes the owner of property when the original mortgage holder severely defaults on their loan. If this occurs, the homeowner may have the option to go through a short sale in order to unload the property and pay off their remaining loan.
If the borrower is unable to sell the home and/or pay back the mortgage, the lender will foreclose on the property and attempt to sell it at auction. However, itâs common for foreclosed properties to go unsold. At this point, the lender becomes the owner of the property, and so it will sit on the bankâs books until theyâre able to sell it other ways.
A mortgage holder in default may also opt for a deed in lieu of foreclosure, which means they transfer interest of the property directly to the lender in order to avoid foreclosure proceedings.
If a homeowner passes away, or they have a reverse mortgage that comes to an end, the property may be returned to the bank if the heirs canât or donât want to provide the money to keep it.
Banks Sometimes Lock Homeowners Out Of Their Homes During A Foreclosure Without The Legal Right To Do So Learn How You Can Prevent It
Homeowners in foreclosure have the legal right to remain in their home until the process is completed. The foreclosure process works differently in different states. In some states, the loan owner has to file a lawsuit with the court to foreclose, while in others, it can foreclose without going to court. Homeowners can live in the home during the foreclosure process the bank can evict you only after the foreclosure is over. State law sets specific procedures for foreclosures and evictions following it.
If a home is vacant, however, the bank can go in and secure the property. Property preservation companies, also called “foreclosure cleanup companies” or “field service companies,” working on behalf of banks are supposed to ensure that vacant properties in foreclosure are secure and properly maintained. But these companies are well known for committing serious abuses against homeowners, like breaking into still-occupied homes, stealing the homeowners’ personal property, and damaging the place in the process.
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.
Some States Have Taken Against Field Service Companies
Field service companies sometimes ignore the rights of occupants in the course of securing a home. But some states are starting to step up to protect the rights of homeowners.
The Attorney General of Illinois filed a lawsuit accusing the largest company in the industry of illegally breaking into occupied homes, locking the occupants out of the home, removing personal property, and shutting off utilities to the homeâoften when there was clear evidence that the property was occupied. The company also allegedly misrepresented to homeowners that they were no longer allowed to live in their homes and refused to allow them to re-enter the property when, in fact, the occupants were entitled to stay until the foreclosure was finished.
Also, Maine has a law that cracks down on property preservation companies. Under Maine’s law, property preservation providers are prohibited from breaching the peace while going about their work. It also requires them to:
- inventory all personal property removed from the home
- keep a permanent record of all steps taken to preserve and secure the property, and
- make that record, along with the inventory of removed items, available to the homeowner upon written request. .
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If youre wondering how to buy a foreclosed home, consider this your primer.