Buying Foreclosed Homes, Foreclosure Tips, Glossary
Angie’s List went to the experts to help prospective buyers determine if a foreclosed property is a good idea.
Buying foreclosed property is neither cheap nor easy.
- Inspect your potential investment during off hours: some agents report that criminals often set up shop in empty homes
- To find foreclosed properties check the Multiple Listing Service (www.MLS.com) or your local paper
- Beware of stubborn tenants who previously lived in the house. Some could pose a challenge to force out if they are not already out
- Have your finances in order and be ready to pay
- Research, research, research
There are four different types of foreclosures.
- Pre-foreclosure: Typically, this happens when the owner has missed one or two payments and a buyer can pick it up without the seller destroying their credit. There is a public list available at your local courthouse that lists properties going through pre-foreclosure. The next step would be to contact the owner and start talking about making an offer.
- Short Sale: The bank is willing to take a bit of a loss, in order to quickly sell the property. First, get the homeowner’s permission to talk to their bank to negotiate the total amount the bank wants to collect without going into foreclosure. By offering a lower-than-market offer, you save money and also help the bank and homeowner from going to foreclosure.
- Auction: These usually take place on your local courthouse steps and the home goes to the highest bidder. Depending on what state you live in, you might not be able to inspect the property before bidding, so you definitely want to do your homework first and find out as much about the property as you can. An auction will only work if your finances are ready at that time to purchase the property with cashier’s check or cash at the time of bidding. If there is no bidder, then the home goes to the bank.
- Bank Owned: The home has been vacated and the bank owns property. Be patient. This process can be long and stressful, since you are working by the banker’s hours.
Angie’s List tips for purchasing a home in any stage of foreclosure:
- Inspect before buying: In most cases you will be able to inspect the entire property before buying. Hire a professional home inspector to inspect the entire house so you know exactly what you are getting into. Most foreclosed properties come “as is”. Sometimes, tenants who get evicted retaliate and strip the house of everything including doorknobs, pipes and all appliances.
- Do your homework: Make sure you find out if the property has any unpaid liens. If you don’t, unpaid lenders could come after you to try and collect what they are owed.
- Location: Know the area where the property is located. If you see a lot of foreclosure signs in yards, it could be a sign that the area is declining in value.
- Be patient: Great deals are out there, but you have to be patient and make smart decisions when buying a foreclosed property. A respectable real estate agent can help you get what you want for the price you want.
- Don’t get emotional: If it seems to be good to be true, it most likely is. It is not safe to assume that someone wouldn’t sell you a house experiencing some “issues.” Buying foreclosures is a business transaction and is not meant for emotional feelings to be attached.
For homeowners worried about how to escape foreclosure:
- Take the time to assess your situation to determine if you can cut back on unnecessary expenses and then take those steps.
- Save your tax refund as long as possible, or apply it to your mortgage rather than splurging on something that won’t improve your financial situation.
- If you know you won’t be able to make the mortgage, call your mortgage holder and ask to speak with a loss mitigation expert. The bank or lender has little interest in acquiring more properties (they generally lose thousands on each foreclosed upon property) and will work with you to craft a way out of your situation.
- Even if you have missed payments already, a loss mitigation expert or credit counselor can – and will – help you.