Why Buy a Foreclosure?
Foreclosures are good investment choices for buyers who are looking for a discounted property. However, most foreclosure properties are not in good condition so you need to take that into account when you are making an offer. If you are handy and can do the work yourself, even better because this could help you save money.
What you Need to Know About Buying Foreclosures?
Foreclosure Laws Vary from State to State
Although the real estate foreclosure laws vary from state to state, the foreclosure properties are generally offered for sale to the public at foreclosure auctions conducted by the sheriff, the trustee or an auction company at the courthouse in the county where the property is located or at the property location. Some states foreclosure process require court approval. Other foreclosures are conducted by private trustee sales and do not need court approval. Also some states allow the former owner to redeem the property after the sale pursuant to the statutory redemption laws of that particular state.
Notices of foreclosure sales are published in newspapers of general circulation in the county where the property is located, at the local courthouse and at the property location. Each state has different auction rules so you should check your state laws to find out what you need to do to comply. There are also online foreclosure auctions where you can bid from the comfort of your home.
If you are the successful bidder, you will be given a deed that should be recorded with the county recorder’s office where the property is located.
Title Insurance is Not Available
When you purchase a property at a foreclosure auction, you cannot get title insurance. You can view the property. It is smart to do your due diligence first before making any bids.
You are responsible for evicting the seller or any tenant that is still remaining on the property.
If you are thinking about renting the property, then that may not be a bad thing if the seller wants to remain on the property or if the tenant wants to remain.
New foreclosure laws were signed into effect this year by President Obama protecting tenants from foreclosure eviction. The tenant may remain on the property until the end of their lease term and for an additional 90 days after the notice of eviction has been given to the tenant.
For tenants without leases, the tenant may remain 90 days after the notice of eviction is given. However, the new law is not specific as to when the notice must be given. You should check the state laws in your area for more information, or consult with a real estate attorney.
REO’s are also good investment choices because they are properties that are owned by the bank. The bank buys them back if they do not sell at the foreclosure auction. REO’s are listed for sale at discounted prices with local Real Estate Agents, who represent the bank. If you are interested in making an offer on an REO, you must make it through a Real Estate Agent, either the listing agent or a buyer’s agent. Either way, the bank pays the broker commissions.
REO’s are typically in very poor condition because the properties have been vacant for some time and have not been maintained. Many times the former owners strip the homes of everything, including appliances, cabinets, hardware, countertops and vanities. With an REO, the buyer acquires clean title, receives a title insurance policy and can conduct a physical inspection of the property.
A short sale is a pre-foreclosure property that is still owned by the seller. However, the seller is typically in default on their mortgage payment and is facing a foreclosure. In order to avoid foreclosure, the seller puts their home on the market for a lesser amount than what they owe their lender on their loan balance because the home is worth less as a result of declining market conditions.
The lender must approve the transaction. The sale proceeds go to the lender, and the lender agrees to write off the balance of the seller’s mortgage loan. The buyer gets a discounted property, the seller gets to walk way and the lender avoids the costs of foreclosure. If there is a Real Estate Agent, then the lender pays the commission and closing costs on behalf of the seller.