Foreclosure Buying Tips- What You NEED To Know! Part 2- Foreclosures and Auctions

    This is part 2 of a 3 part series on how foreclosures work and how to find the best home to fit your needs at the best price.

    There's really no great mystery to it, but there is a process to it and I'm here to do my best explaining how each step works and how you can capitalize on it as a consumer to keep a little more cash in your pocket.

The 3 steps are this:

1. Pre-Foreclosure
2. Foreclosure
3. Post Foreclosure REO(Real Estate Owned)

I will be posting this as a 3-part series, so I will break explain Post-foreclosure and REO Properties in my next post.

Foreclosure
   
    What This Means

    The homeowner is delinquent in paying their mortgage and the bank has foreclosed on the property.  At this point the homeowner no longer owns the property and has been informed that they must immediately vacate if they have not done so already.

    A foreclosure property is often placed on the market for sale by auction on the courthouse steps.   It used to be common to find a great deal by attending the auctions and purchasing the home there.

    What  has happened recently is that because of lawsuits that have established precedence, banks will typically have an agent of theirs at the auction to prevent the property from being sold at a huge loss to the bank.

    Because of the nature of the market right now, it is hard to establish what a home would really sell for so now you will find that most properties do not actually change ownership through courthouse sale because the price someone is willing to pay for a property, sight unseen, is not acceptable to the bank at that time.

    The Positives

1. You may be able to get a great deal on the home- If the bank is willing to sell the home at any price, this is your chance.  Typically, banks have not been very inclined to sell at a price acceptable to consumers, so auctions have lost a lot of popularity.
   

    The Negatives

1. You are not typically able to view and inspect the interior of the home prior to auction-  The house is sold strictly as-is, where-is.  There could be any number of problems, mold, structural damage, water damage, etc.  and there is no way to know without seeing the property in advance.
2. The whole process can seem rushed-  Having to decide on buying a home without having seen the current condition is not wise, and you shouldn't allow anyone to convince you otherwise.
3. Caveat Emptor- The home is being sold strictly "buyer beware".  Appliances may or may not exist/work, and the same goes for plumbing, electrical systems, etc.

    How to Capitalize

1. Focus on homes you can view in advance-  There are rare situations where the house may be held open prior to auction, make sure you take advantage of that fact!
2. Know in advance home much you are willing to spend on the property-  And don't spend more that that amount!  Remember that you're there to save money, and spending more than you wanted isn't wise.  You are calculating the financial risk into any assessment you make, and there's a reason you decided on a figure.  Stick with it!
   

    Remember that at this point the bank has more invested than just the loan amount:  There's legal fees, departmental fees, contractor fees (possibly) transfer/title/recordation fees, and they are going to want to recoup that if at all possible. 

    Banks aren't in the business of losing money, and they have shareholders to answer to if they sold property from bad debt for pennies on the dollar when they're losing as much as they are on bad loans.

    If you had been able to buy the property from the homeowner prior to foreclosure, there would have been less overhead involved in the transaction, and you may have saved more money.

    Part 3 will describe how buying an REO home post foreclosure.  Make sure you check back for that and if you have any questions, please ask!

Jonathan, Marsha, & Thomas Benya
~Team Benya
Century 21 New Millennium
301-653-8116
Website

Comments

[Catherine]

Hi! I work at ____________.com a foreclosures site. Troubled homeowners should not be afraid or embarrassed to explore options to prevent foreclosures. The drive to inform homeowners whether troubled or not about these options should be intensified so that homeowners will not readily resort to giving up their homes. Even from this article, the cons far outweigh the pros.