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| There is no doubt that everyone wants to buy a home priced below the current market value. If you can find one, and it really is of more value than what you are asked to pay for it, BUY IT! Real estate has always been and will always be a sound investment if you know what you are doing. If you don’t, let someone who does help you. I want to make it clear that the following information is not be be considered as negative, only factual! Given the right set of circumstances, this can be a very good way to purchase. |
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The first step is to understand what you are dealing with. In years gone by repossessed homes were a good, and often inexpensive, way to pick up properties. However, that has become much more difficult now. There are several stages involved in the repossession process in which a property may be purchased. I will explain them in some detail. |
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The first stage is commonly called the 'Short Sale'. The homeowner is in default on their loan and they try to sell the house, but are not able to sell for the amount owed on the loan(s). The bank is presented with an offer that is less than what is owed and they decide that they will take the offer, instead of having to take back the property. This is a very complex and time consuming process. It can take months to get an answer back from the financial institution holding the first loan on the property. The majority of the negotiations are done with the first lien holder. The lower the amount of the first loan, the more likely they will take a lower offer. They are not required to satisfy the other lien holders. If they take the offer, and close the deal, then the other liens become unsecured debt that the homeowner will need to deal with. The manner in which a sort sale is conducted is very critical. The seller should have an agent who understands the process, as should the buyer. |
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If a short sale does not take place then the lender proceeds with the foreclosure. The process normally takes months, but at some point in time a Trustee sale is announced. The homeowner has the ability to redeem the property up to about 11 days prior to the sale. If the property is not redeemed then there will be a sale on date and time specified in the public announcement. These sales normally take place on the steps of the courthouse of the county in which the property exists. The opening bid is the amount specified, plus a number of other costs. Those may be any or all of the following; fulfilling any existing liens, back taxes, back interest payments, attorney costs, basic costs of selling, etc. It is almost impossible to finance these, as they do not come with any type of warranty on the property or title. In other words, these are 'AS IS' sales. If you find a private lender who will finance it then you will pay a very high interest rate, as these are risky properties. There are professionals who represent investors and investment groups who are seen at most of these sales. They have the money behind them to pay cash for these properties. These auctions have been know to bring pretty high prices for some properties, due to the investment nature of the purchase. |
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If the minimum bid is not received then the lender takes title to the property. This is what is known as an REO (Real Estate Owned). Banks are not in the real estate business. A property may be considered an REO if owned by an investment group who repossessed the property. The investment group may hold the property and wait for the right market before selling it. Banks will normally put the property on the market with a professional Real Estate Company to market and sell it. These will usually sell for market value and are seldom offered at low prices. The lender may or may not offer financing, but they will still expect a substantial down payment and good credit history. Some lenders will offer better terms if the credit history warrants it. |
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It is not unusual for these properties to be in need of repair. Once a homeowner realizes that they are going to loose the home they often stop taking care of the property. They may move out and leave it abandoned with no power, etc. This can then lead to mold and deterioration that may or may not be repairable. If there is serious damage to the property it may not be able to be financed, so cash will be needed to pick it up. |
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Always make sure to be pre-qualified for a mortgage before you start getting serious about a property. Understand what you financing options are and how much you can afford. A solid buyer has a much better negotiation position, so do your homework up front. |
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If you are looking for a good deal on a home, then your best bet may be to enlist the services of an experienced Real Estate Agent. Roy and Albert each hold Broker's licenses in Florida and Washington. We both have hundreds of classroom hours studying real estate and preparing to help you find the right home. We are experts in understanding the process as well as understanding the laws of Real Estate. Most home buyers and sellers do not realize that they are required to follow all of the laws involving a real estate transaction, even if they are not using agents. |
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We are not attornies and make no legal representation about this information. Please check with your attorney or CPA to verify. |
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