Foreclosed homes, as you probably know, are typically cheaper to buy than most homes on the market. When homeowners can no longer pay the home’s mortgage and do not have the option of selling, a home will often be foreclosed. It will then go to ownership of the bank or a government agency.
However, it is important to know the differences between a short sale, a pre-foreclosure, and a foreclosure before proceeding. This will let you know under what circumstances buying a foreclosed home might be a possibility.
When homeowners owe their lender more than the value of their home, a short sale may take place so that the lender agrees to accept less than the full amount owed. This approval of loan terms from the lender will determine that the house has indeed been “sold short.” A short sale is known to be an alternative to foreclosure.
A pre-foreclosure property is one that might be foreclosed due to its receipt of a Notice of Default (NOD) before the Lis Pendens (LIS) – in non-judicial foreclosure or in judicial foreclosure, respectively. The home could become a short sale, as described earlier, but it is still legally in the owner’s hands. Pre-foreclosure is a long term process that can span several months long because the owner may still be paying off the amount owed, or he or she may also be trying to sell the property. In some states, this period can last even more than 13 months. Pre-foreclosed homes are sometimes properties that homebuyers will keep under their radars by scanning “Legal Notice” sections of newspapers and daily postings; however, they are not always for sale due to the fact that they are provided a grace period in which the amount due can still be paid off.
A foreclosed home, is a home that has received a judicial foreclosure, or a LIS. As cited earlier, Lis Pendens means “Suit Pending” in Latin – typically in terms of a filed lawsuit against the property. This means that the homeowner is no longer legally bound to the property, and the property will be placed in a foreclosure auction. This becomes a public record, which allows those interested in the property to know that it has been foreclosed.
That being said, foreclosed homes must have completed the entire process before going on sale. Once ownership of the home has been transferred from homeowner to bank or lender, a third party, real estate owned (REO) properties will then be available in the housing market – often for a reduced price.
Buying a foreclosed home therefore comes with several pro tips on searching, narrowing, and closing a deal. This is different from finding a home to buy on the regular housing market, but can be a valuable choice when comparing overall costs and estimates that go into the selection process of choosing a home.
When trying to purchase an REO property, real estate agents who specialize in foreclosed properties know the trick of the trade better than most others.
Because these homes are often more affordable housing options, there are many factors that go into these type of purchases such as eminent maintenance and upkeeping fees, as well as other costs that will come in the initial inspections. Additionally, paperwork that might come with previously foreclosed homes can be a hassle to sift through if the buyer is not well-versed in these types of contracts.
Ultimately, the value might look good to you, but a specialist who knows the law of the land can help you better determine whether it is worth the investment.
In addition to choosing a real estate agent by specialty – since there are markets he or she will know best – it is important to make sure that they are a top-of-the-line agent by word of mouth. Checking online for ratings is one way to do this. Another way of vetting for your agent could be by asking for the contact info of past clients to see how their experience was – or even find other properties they had been interested in. You never know what you’ll find.
Knowing your price point is a huge factor that determines what properties you’ll be looking at. Make sure your agent is familiar with property sales in this predetermined range.
On the flip side, know your budget – including additional costs. These extra numbers may include anything from property inspection to maintenance repairs. Foreclosed homes often aren’t kept in tip-top condition since they are owned by the bank or government and have no designated caretaker, so expect some upkeep work on your end – as well as acquiring accurate estimates.
Inspecting the property is a huge must. Not only should you make sure that your property has an up-to-date inspection, but you should also see it for yourself. Brokers can upsell homes or leave out details that are sometimes better to see in person to make certain calls. Vandalism, stolen fixtures, and broken piping could set you back.
Also be sure to check if your property’s landscaping is up to scale. Trees, vines, and bushes can uproot foundations or crawl around the house’s sides if not monitored or taken care of. Another good question to ask is whether the house has been winterized or not. Cold spells can crack pipes or other fixtures. If known in advance, repairs can be made accordingly.
How long have the previous tenants been out of the house? Usually, there is more damage the longer a house has been vacant. When seals around plumbing, sewage, and and drains dry out and crack, it’s usually because of a lack of use. Also be wary that bugs may have invaded certain rooms or spaces, or that sinks and toilets may be out of order from not being touched for so long.