Tips on Buying Real Estate Foreclosures
For careful buyers who know the difference between a low price and a good deal, a foreclosure can be a good opportunity. A foreclosure is a default on a mortgage, and the property returns to the lender (or to the government, in the case of HUD homes), which places the property on the market.
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A Good Deal?
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When an owner defaults on a mortgage, the mortgage holder forecloses on the property and usually lists it at a fair, or even below-market, price. A foreclosed home is typically vacant while on the market and may not be in good condition. Banks with large inventories of foreclosed homes may be positioned to negotiate price, thereby making the deal even more attractive.
You can find foreclosed properties--and pending foreclosures--online on several database sites (see Resources). Most charge a subscription fee. As for government-owned homes, only HUD-registered brokers are permitted to place bids. In foreclosure listings, the name and contact information of the HUD-registered broker will be listed.
Where to Begin
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Bank-owned properties are also referred to as REO (real estate owned) properties. These foreclosed homes are sold through real estate brokers. If you are interested in a particular foreclosed property, contact a licensed realtor, as well as a closing attorney who specializes in foreclosures, as these properties must be handled differently than other residential real estate transactions.
A trained real estate lawyer can access the balance, title update and other important information on the property and the mortgage and help remove the risks involved in purchasing a foreclosed property.
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Caveats
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When considering a foreclosed home, the prospective buyer should hire a professional contractor or inspector to examine closely the property. A trained professional can identify needed repairs and even provide estimated costs.
More than the appearance and upkeep of the home, a foreclosed property can be housing some serious financial conditions--IRS liens, bankruptcy and personal property liens. An IRS lien remains attached to the property unless adequate notice is given to the IRS, stating the property is changing ownership. In the worst-case scenario, if the lien is not satisfied, the lawyer closing the property would have to pay the lender the full amount of the lien. In bankruptcy cases, where the homeowner filed for personal bankruptcy, the bankruptcy court must give permission for foreclosure. And finally, personal property liens can result if the homeowner purchased a central air conditioning system, for example, against the property. If the personal property lien is not resolved, the air conditioning system can be removed from the property.
After closing, a risk remains. In some states, a "right of redemption" is in place for six to 12 months, allowing the previous owner to buy back the lost property. Dating back to early Hebrew law, the right of redemption requires the previous owner to pay the entire cost of the original loan, plus costs of reasonable repairs paid by the new owner. The former owner must also pay a 10-percent interest penalty, the balance of the original loan, accrued interest, attorney fees and costs.
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