A tide of foreclosed properties has been sweeping into the beleaguered housing market, bringing down property values, dislocating families, and sending municipal governments scrambling to manage the crisis. But some buyers see a once-in-a-lifetime opportunity in the gloomy headlines; they are buying up foreclosed properties at ultra-low prices.
Sound Mortgage, Inc. and Fairplay have teamed up to provide turnkey solutions for our clients to succeed in buying foreclosures. Contact me for more information. Below is information should you decide to “go it alone”
Land Mines
"You have to know how to do a title search," or you could end up thinking you've just bought a home by paying off a $100,000 mortgage only to find out that was just the second mortgage and you had to pay another $200,000 to take ownership.
"Suddenly that great buy isn't such a good deal. You also have to be aware of [any] liens on the property because you're going to be responsible for those as well."
On top of that foreclosure homes are sold "as is" which means that the 25 – 40 percent you just saved on the purchase price can easily be eaten up by unforeseen expenses such as repairs not immediately apparent in an exterior inspection. That's because when you buy a home in foreclosure, you may not be able to look inside let alone have an inspector detect structural problems that you'll need to fix before moving in.
Something else to think about -- people who lost their home in foreclosure very likely couldn't afford to maintain their property.
So be prepared to pay for any problems such as electrical or plumbing repairs, leaky roofs, or even vandalism by angry homeowners who break things or punch holes in walls and doors, an unacceptable but not that uncommon way that some homeowners deal with the angst of losing their home to foreclosure.
Just remember that they're losing a home and you're benefiting from their loss so they may want to take out some of that rage on the new buyer the only way they can, by trashing the home that they've lost.
Three Ways to Buy
There are three ways you can buy foreclosures and each one has its own distinct discipline.
They are:
• Pre-foreclosures, where you buy directly from a homeowner before the bank forecloses;
•At auction, where you place a bid, possibly in competition with others;
•From a real estate company. This is called an REO.
Pre-foreclosures "Pre-foreclosures are appealing because they require the least amount of capital, and almost all the information you need is available.
"You can inspect the house and conduct a title search so you won't have any surprises. With a pre-foreclosure, the owner signs a deed and gives you the property.
In return, you acquire the mortgage that comes with it. Plus you have to make the mortgage current by giving the bank any back payments.
The key with pre-foreclosures is to make the sale 'subject to mortgage.' On average you might make ten to 20 percent."
At Auction The exact mechanism varies from one state to another. Auctions can be held on courthouse steps, in the county clerk's office, or in front of the foreclosed house.
"Auctions also carry the most risk, at the same time; they can also offer the greatest reward. Sometimes you can make as much as 40% on an auction foreclosure. But you have to know what you're doing."
In an auction, buyers can't inspect the home in advance of the auction, they have to pay in cash, usually with a cashier's check, and sometimes the current homeowner simply refuses to move out. It then becomes the buyer's responsibility to evict the old owner.
Auctions also tend to attract real estate investors seeking a great bargain that they intend to flip (resell) for a quick profit.
If you're looking for a home to live in, an auction may offer way to go over paying retail prices.
REO Real Estate Owned properties or (REOs) represent the third way to buy foreclosures.
"Reo is least risky in terms of what you're buying, you get to fully inspect the property, demand a clear title, and the sale can be subject to getting a mortgage.
Most banks sell foreclosure properties through a broker. They are considered the safest and also the least financially rewarding of all foreclosure buying options. But properties sold this way also tend to be in better shape.
The downside is that you probably won't get as good a deal as you would with an auction or dealing directly with homeowners who are in a pre-foreclosure category.
Financial Considerations
When considering buying a home that's gone into foreclosure there are a number of financial considerations that have nothing to do with the property that could put you between a rock and a hard place.
For example, when you go to an auction, “Winning bidder must pay cash via cashier’s check at the auction”
Another possible complication is something mentioned earlier, a "lien." A lien is a legal claim against a home.
There's a fairly good possibility that someone who can't make mortgage payments may owe money elsewhere. Therefore, you have to conduct what's called a "title search" that should uncover any liens.
Common liens stem from unpaid taxes -- either property taxes or income taxes -- in which case the federal, state or local government could have a claim against the foreclosed property.
Other liens may include unpaid contractors or HOA dues etc. Some liens are wiped off the property at foreclosure and some are not. Those not removed at the foreclosure sale will remain intact until the money is paid which means that you will have to pay off the liens on the foreclosed property you are buying, and even though you're not the one who didn't pay the property taxes the last few years. “You need to know what you’re doing”
Be forewarned -- you won't be able to get title insurance that provides protection against anyone challenging you for ownership of the property.
Default Letter
The foreclosure process starts when the lender sends the homeowner a letter regarding the default, usually after the first missed mortgage payment. Thirty days must be given for a person to pay the past-due amount, and lenders must give the homeowner a date by which the money is due.
If the homeowner doesn't respond or "cure" the default, the lender can post a notice of sale at the courthouse. Foreclosure auctions in Pierce & King County Washington are usually held on Friday mornings. The auction happens outside, rain or shine.
What's Required
If you are thinking about becoming a professional real estate investor, or just looking to buy a great deal, we can educate and assist you to succeed since all the due diligence, title search information and fix up costs are provided to our investors.
We even have conventional long term financing options available for our investors who want to buy and hold investment properties. Should you decide to go it alone then?
"You need to be able to do your own title searches” You need to be able to price or appraise property to determine any equity. You need to know how to fix up a property and then how to market it. And finally, if you're buying at auction, you need to have enough cash."
To put it simply, buying a foreclosure is not just risky business, it's one gamble where the house doesn't always win.
Every Thursday evening, Fairplay provides “Investor Workshop Training” and immediately following they have “Investor Cafe” where they review all the targeted good deals for the auction Friday morning. Contact me for information if interested in attending one of these meetings.
Sound Mortgage, Inc. and Fairplay have teamed up to provide turnkey solutions for our clients to succeed in buying foreclosures. Contact me for more information. Below is information should you decide to “go it alone”
Land Mines
"You have to know how to do a title search," or you could end up thinking you've just bought a home by paying off a $100,000 mortgage only to find out that was just the second mortgage and you had to pay another $200,000 to take ownership.
"Suddenly that great buy isn't such a good deal. You also have to be aware of [any] liens on the property because you're going to be responsible for those as well."
On top of that foreclosure homes are sold "as is" which means that the 25 – 40 percent you just saved on the purchase price can easily be eaten up by unforeseen expenses such as repairs not immediately apparent in an exterior inspection. That's because when you buy a home in foreclosure, you may not be able to look inside let alone have an inspector detect structural problems that you'll need to fix before moving in.
Something else to think about -- people who lost their home in foreclosure very likely couldn't afford to maintain their property.
So be prepared to pay for any problems such as electrical or plumbing repairs, leaky roofs, or even vandalism by angry homeowners who break things or punch holes in walls and doors, an unacceptable but not that uncommon way that some homeowners deal with the angst of losing their home to foreclosure.
Just remember that they're losing a home and you're benefiting from their loss so they may want to take out some of that rage on the new buyer the only way they can, by trashing the home that they've lost.
Three Ways to Buy
There are three ways you can buy foreclosures and each one has its own distinct discipline.
They are:
• Pre-foreclosures, where you buy directly from a homeowner before the bank forecloses;
•At auction, where you place a bid, possibly in competition with others;
•From a real estate company. This is called an REO.
Pre-foreclosures "Pre-foreclosures are appealing because they require the least amount of capital, and almost all the information you need is available.
"You can inspect the house and conduct a title search so you won't have any surprises. With a pre-foreclosure, the owner signs a deed and gives you the property.
In return, you acquire the mortgage that comes with it. Plus you have to make the mortgage current by giving the bank any back payments.
The key with pre-foreclosures is to make the sale 'subject to mortgage.' On average you might make ten to 20 percent."
At Auction The exact mechanism varies from one state to another. Auctions can be held on courthouse steps, in the county clerk's office, or in front of the foreclosed house.
"Auctions also carry the most risk, at the same time; they can also offer the greatest reward. Sometimes you can make as much as 40% on an auction foreclosure. But you have to know what you're doing."
In an auction, buyers can't inspect the home in advance of the auction, they have to pay in cash, usually with a cashier's check, and sometimes the current homeowner simply refuses to move out. It then becomes the buyer's responsibility to evict the old owner.
Auctions also tend to attract real estate investors seeking a great bargain that they intend to flip (resell) for a quick profit.
If you're looking for a home to live in, an auction may offer way to go over paying retail prices.
REO Real Estate Owned properties or (REOs) represent the third way to buy foreclosures.
"Reo is least risky in terms of what you're buying, you get to fully inspect the property, demand a clear title, and the sale can be subject to getting a mortgage.
Most banks sell foreclosure properties through a broker. They are considered the safest and also the least financially rewarding of all foreclosure buying options. But properties sold this way also tend to be in better shape.
The downside is that you probably won't get as good a deal as you would with an auction or dealing directly with homeowners who are in a pre-foreclosure category.
Financial Considerations
When considering buying a home that's gone into foreclosure there are a number of financial considerations that have nothing to do with the property that could put you between a rock and a hard place.
For example, when you go to an auction, “Winning bidder must pay cash via cashier’s check at the auction”
Another possible complication is something mentioned earlier, a "lien." A lien is a legal claim against a home.
There's a fairly good possibility that someone who can't make mortgage payments may owe money elsewhere. Therefore, you have to conduct what's called a "title search" that should uncover any liens.
Common liens stem from unpaid taxes -- either property taxes or income taxes -- in which case the federal, state or local government could have a claim against the foreclosed property.
Other liens may include unpaid contractors or HOA dues etc. Some liens are wiped off the property at foreclosure and some are not. Those not removed at the foreclosure sale will remain intact until the money is paid which means that you will have to pay off the liens on the foreclosed property you are buying, and even though you're not the one who didn't pay the property taxes the last few years. “You need to know what you’re doing”
Be forewarned -- you won't be able to get title insurance that provides protection against anyone challenging you for ownership of the property.
Default Letter
The foreclosure process starts when the lender sends the homeowner a letter regarding the default, usually after the first missed mortgage payment. Thirty days must be given for a person to pay the past-due amount, and lenders must give the homeowner a date by which the money is due.
If the homeowner doesn't respond or "cure" the default, the lender can post a notice of sale at the courthouse. Foreclosure auctions in Pierce & King County Washington are usually held on Friday mornings. The auction happens outside, rain or shine.
What's Required
If you are thinking about becoming a professional real estate investor, or just looking to buy a great deal, we can educate and assist you to succeed since all the due diligence, title search information and fix up costs are provided to our investors.
We even have conventional long term financing options available for our investors who want to buy and hold investment properties. Should you decide to go it alone then?
"You need to be able to do your own title searches” You need to be able to price or appraise property to determine any equity. You need to know how to fix up a property and then how to market it. And finally, if you're buying at auction, you need to have enough cash."
To put it simply, buying a foreclosure is not just risky business, it's one gamble where the house doesn't always win.
Every Thursday evening, Fairplay provides “Investor Workshop Training” and immediately following they have “Investor Cafe” where they review all the targeted good deals for the auction Friday morning. Contact me for information if interested in attending one of these meetings.
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