Advice on Buying Foreclosed Property
If a borrower falls behind on his mortgage payments, a lending institution will seek to reclaim the property and evict the borrower. Banks will auction off these properties at a county or city courthouse or reclaim these properties through a non-judicial foreclosure written into the mortgage contract. The bank will then try to sell these foreclosures quickly in order to recoup its losses and avoid maintaining the property and paying property tax.
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Benefits
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Foreclosed properties can offer significant savings over the purchase a regular home. Banks often sell properties for tens of thousands of dollars less than the property is worth. Homes may contain serious damage that the bank does not want to repair. Since real estate represents a liability to a lending institution as opposed to an asset, the bank can use the money from the sale to create new loans.
Research
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The Realtor site contains a comprehensive list of Multiple Listing Service (MLS) properties, which includes foreclosures. Specialty foreclosure property sites, such as RealtyTrac, offer foreclosure listing services for a monthly fee. Some people choose to partner with a real estate agent who specializes in foreclosure properties in order to scout out properties before they hit the general market.
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Auction
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With a court ordered foreclosure, a local city or county courthouse will auction off a foreclosed upon property on the courthouse steps. Most municipalities require a notice of sale for two weeks to a month before a property auction. Foreclosure hunters can search their local newspaper to identify properties they wish to purchase. At the auction, properties may start out with no minimum bid or a low starting bid, which can allow investors to pick up an excellent deal.
Inspection
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Some foreclosed upon borrowers may damage properties before leaving the premises. Foreclosure buyers should always hire an inspector if possible. With some homes, banks may offer the home as is, which means home repairs will not be paid for and the bank will not allow inspections. In this case, foreclosure buyers must have the skills to conduct a rough inspection themselves in order to ensure the condition of the property.
Cash
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Foreclosed homes may require renovation. Buyers can have difficulty obtaining financing for such a property, and the application process takes time. Due to the demand for foreclosed properties, foreclosure investors who can pay cash for the property receive priority over individuals who wish to purchase a foreclosure with a bank loan. Some buyers may wish to gain pre-approval for a home loan so that they can close on a property faster.
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