Get Your Financing Ready
As with any competition, having an advantage over other purchasers can increase your chances of obtaining the foreclosed home you desire. You will be more appealing to sellers if you have already been prequalified for a home loan by a bank or financial institution. They will know you are a creditworthy and serious buyer with a pre-approved home loan that you can use at any moment. As a result, you will have more negotiating leverage compared to other buyers. Furthermore, getting pre-approved allows you to stay to a budget.
Texas Foreclosure Laws For Buyers
Texas is a moderately complex state when it comes to foreclosure law. It’s mostly non-judicial, which means that most foreclosures don’t need to be filed with the court or ruled on by a judge. That also means that the process goes faster thanjudicial states, which can take months or even years to complete the foreclosure process.
Deficiency judgements are allowed in Texas, which means a house can be sold for less than what’s owed on it â this is also called a short sale. This opens up the possibility of getting a good sale price because sellers aren’t required by law to get enough money tofully cover their debts. That said, you’ll probably have to deal with the lender directly if you intend to buy a house as a short sale.
Texas also has a relatively long redemption period for tax-delinquent foreclosures, which can last up to two years. During that time, prior owners can pay off their delinquent taxes to regain possession of their property, regardless of any improvementsyou may have made to it.
Finally, Texas foreclosure buyers should keep tenant protection laws in mind. If you intend to live in the property â also called owner occupying â you need to allow any current tenants 90 days to vacate the property. If you intend to rent outthe property, you must honor the terms of the lease for the current tenant.
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If youre wondering how to buy a foreclosed home, consider this your primer.
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Find Foreclosed Homes For Sale
You can find foreclosed properties advertised in many places, from national websites to your local bank branch. They may not always be available in the neighborhoods youre eyeing, so be prepared to monitor the market for a minute. A real estate agent could help you.
You can find local foreclosures advertised in print publications and on Multiple Listing Service sites. You may have to use a search filter for foreclosures here are a few popular sites:
Where To Find Foreclosed Homes
While itâs usually easy to find homes for sale on the market, finding foreclosed homes requires a little more work and specialized knowledge. Knowing how foreclosed homes are listed or how theyâre sold outside of an auction can help you start locating them.
Here are some ways to look for and find foreclosed homes for sale.
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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.
Things To Know Before Buying A Foreclosure Listing
Theres a lot to consider when buying a home, especially a foreclosed home. Keep these items in mind when you enter the market and start shopping for a foreclosure:
- Sold as-is. When buying a foreclosed home, what you see is what you get.
- Firm sale price. The bank has a firm debt to be recovered and cant go any lower than the asking price. So, youll want to understand that you cant negotiate the sale price.
- Required preapproval letter. Before purchasing, youll be required to have a preapproval letter from a mortgage lender for the selling bank to consider your offer. Take a look at our mortgage and home loans primer for important details on how the process works.
- One real estate agent. To cut down on commission costs, almost all foreclosures are brokered by a single real estate agent wholl represent both you and the seller.
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Youll Pay A Lot More For Homeowners Insurance
Insurance on a second home generally costs a lot more than homeowners insurance for your primary residence. There are a lot of reasons for this. For example, second homes are often vacant part of the year, which can add to risks, and theyre often located in higher-risk areas that are prone to flooding or wildfire. If youre planning on renting out your second home, that can also add even more to your insurance costs, since most homeowner’s policies dont cover short-term renters.
Real Estate Owned Properties
Real Estate Owned properties are sold by banks and lenders in the real estate market. These homes have already been auctioned but were not sold. Since the lender is unable to sell the property, they retain ownership and attempt to instead sell the property directly to home buyers.
Banks and lenders will typically hire REO agents that sell the properties to regular real estate agents. You can submit purchase offers directly to a bank or lender, which will typically take a long time and the home might be more expensive. But with this option, you take on much less risk because you can arrange for a home inspection and appraisal before purchasing the property. If you are unhappy with the results, you can choose not to buy the home.
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Make A Competitive Offer
Work with your agent to get an idea of comparable home prices so you can make a smart offer that fits your budget. After all, in a live auction situation, you definitely want to know your limit! But even if you’re buying a home that’s been bank-owned for some time, you’ll want to be strategic.
In a hot real estate market, you may need to offer the full asking price. But even in a more balanced market, a low-ball offer may not fly. The bank may already be asking what it considers to be fair market value and be unwilling to go lower. With an auction site, you may need to meet a reserve price for your offer to be considered.
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.
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Foreclosed Home Purchase Tips
Be on the lookout for foreclosures that linger on the open market because, very often, deal-breaking issues are lurking. Its likely that the home may require significant repairs, or that liens are levied against the home that outweigh the homes value. Also, if the home wasnt winterized the significant costs required to repair that damage have likely deterred other buyers from taking the leap.
Pay For An Inspection And Resolve Liens On The Home
Once your offer is accepted, youll have a period where you can arrange for inspections. If its allowed, you may find it wise to inspect the property prior to putting an offer down to buy a foreclosure. In general, inspections cost anywhere from $400 to $800, depending on what options you choose. For a foreclosed home, youll want a thorough home inspection, including add-ons such as a termite and radon check, along with a sewer and water line assessment. The more you know up-front about the state of the home, the better.
As for resolving liens, many foreclosed properties have more than one loan. The previous owner may have had a piggyback loan from a different lender than the main loan. A reputable title company can help you sort through the liens and untangle any potential conflicts before you move forward with the loan. If everything checks out, you can move forward towards closing.
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Risks And Rewards Of Buying A Foreclosed Home
The amount of risk and potential reward of buying a foreclosed home can vary depending on which part of the foreclosure process the home is in.
First, lets cover some of the risks of investing in a foreclosed home:
- Theres a lot of competition to buy a foreclosure. Real estate investors, for instance, often bid cash for a foreclosed home to operate as an income property with no contingencies and no questions asked.
- The condition of a foreclosure home isnt disclosed or guaranteed. Unlike buying a home listed on the MLS by a real estate agent, the bank isnt required to disclose anything about the property to a buyer. Thats why its important to learn as much as possible about the house before you bid.
- Buying a foreclosed home doesnt always make sense. Just because a home is being sold at a foreclosure auction doesnt necessarily mean its a good deal. Some foreclosure homes have been completely trashed by the previous owner and require major repairs like new roofs or heating and air conditioning systems.
However, theres an upside to everything. Some of the rewards of buying a foreclosed home include:
Q: What Causes A Foreclosure Auction And What Happens After The Auction
Getting through a Foreclosure is one whirlwind ride. But the post Foreclosure confusion is one that has troubled bidders and previous owners alike. Let us review the salient things which flutter by during the post foreclosure period.
For starters, depending on laws specific to the region, a redemption period is offered during which the previous owner can retain his house through adequate financing. It is the decision of the new owner to evict the old owner if he is still over there. The home in case of a void bid is considered to be an REO, with the lender still assuming possession, his decision on putting the property up for grabs remaining the sole authority.
Once the foreclosure is done, the previous homeowners are in for one long walk to the park as they have to consider credit reestablishment, getting another house and others. But Nowadays, with the advent of many small scale financing firms and credit offerings, once can rent a place or even a home without even going through a credit check. So there are many options to consider post foreclosure. What will you are doing?
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Drawbacks Of Buying A Foreclosed Home
Buying a foreclosed home is riskier than buying a home thats owner-occupied. Below are some of the drawbacks to buying a foreclosed property.
- Increased maintenance concerns: Some homeowners have no incentive to maintain the homes condition when they know theyre going to lose their property to foreclosure. If something breaks, the homeowner wont spend money to fix it, and the problem could get worse over time. Youre responsible for fixing whatever problems the home may have when you buy a foreclosed home.
- As-is sales: The lenders main concern is recouping their money as quickly as possible, which means an as-is sale in almost every instance. You shouldnt buy a foreclosed home if you dont have a significant amount of cash to invest in repairs.
- Squatters rights: A home might be legally foreclosed, but it doesnt mean that no one is living on the property. Many foreclosed homes sit unoccupied for months or years at a time, which could attract squatters. If you buy a property with a squatter living in it, you need to legally evict them even if the person or people in question have no claim to the home. This can take months and cost thousands of dollars in attorney fees.
Find A Broker Or Agent Experienced In Reos
If youre a first-time foreclosure buyer, youll want to use a real estate agent versed in REOs. You may think saving on fees and doing it yourself is the smart choice. But in the long run, an agent can save you time, money, and oftentimes frustration.
Many mortgage brokers and agents have years of experience under their belt and can steer you toward properties that meet your specifications. As always, when choosing a professional to work with, look for training, testimonials, reviews and other indicators of knowledge and experience.
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You Dont Have To Go It Alone
If you have friends or family who might be interested in a vacation home, you should explore fractional ownership, which is when several parties jointly own a property. Combining your financial resources will not only expand the range of properties available to you, youll also be able to share the responsibilities of buying, owning, and maintaining the home.
Tip #3 Have Money For Repairs
You wont always get the chance to get a good look at a foreclosed property before you buy it. Furthermore, you may find that the last owners didnt leave the property in very good condition. Thats understandable. Cleaning the counters and touching up the paint work dont rank high on the list of priorities when you have to leave your home in a hurry. You may also find that the previous owner reacted badly to the news of the propertys repossession. There are stories of previous owners purposefully causing damage before leaving the house.
As a result, you may need to have some extra money in the bank to bring the property back up to its top condition. If youre lucky, this may just involve a bit of cleaning. However, there may be more extensive repairs to consider as well.
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What Are The Advantages Of Buying A Foreclosed Home
Like we mentioned, foreclosures are usually priced lower than other homes on the market, so you can get some killer deals if you know how to buy a foreclosed home thats right for you.
And if youre an investor whos willing to put a little sweat equity into the project, you could make a pretty sweet return on investment.
Another benefit is less competition from traditional home buyers, which gives you the ability to negotiate a little more than normal in a hot market like this one.
Purchasing A Foreclosed Home
If buying from a bank, youll need to sharpen your bargaining skills and start with a lowball offer on the property you want.
Banks that have accumulated sizable inventories of foreclosed properties will be more inclined to negotiate on price. The longer the bank has held the property, the greater the odds that it will seriously consider low offers.
You could make an initial bid at a price thats at least 20% below the current market price, or even more if the property is located in an area with a high incidence of foreclosures.
If you can pay for the property and any necessary renovations in cash, youre in an enviable position. Thats why some buyers decide to team up with outside investors who can help them out on the front end and share any profits when the home goes on the selling block once again.
In fact, cash deals represent a sizable portion of REO sales.
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