THOUGHTS ON BUYING FORECLOSURES
From time to time you may see someone advertising a list of properties in foreclosure. This information typically is compiled from the legal section of local newspapers and there are national services that will provide a list, sometimes for a fee. The notices of foreclosure are usually published multiple times in local newspapers so the list should be all inclusive, but no guarantees. Also, in a few cases the borrower in foreclosure either sells the property or works out something with the lender and the property comes out of foreclosure but there is no notice in the paper about that. Some lists will show what has been foreclosed on recently as well as properties scheduled to be foreclosed. The already foreclosed homes usually hit the market no sooner than 30 days after the foreclosure has taken place. In most cases they are listed with a Realtor, even the HUD foreclosures.
I have been following foreclosures for about fifteen years; and in my experience, it is rare that there is a deal to be made on the courthouse steps or at the title company which is where the foreclosure sales are usually held. In most cases, there is a perfectly good reason why the property is in foreclosure and that is because the debt on the property exceeds its worth; and for whatever reason, the borrower has quit paying on their note to the lender. If there was equity in the property then the borrower would or should try to sell it and get their equity out and pay the note off. At the foreclosure most lenders will bid what they are owed which will be the principal amount of the note as well as penalties, interest, legal fees and other costs. Occasionally, a lender may let the property go for less than what is owned at the foreclosure if they have determined that there is real interest and the cost of taking the property back, cleaning it up and re-selling it will result in less money to the lender than simply taking the high bid at foreclosure.
"Deals" on foreclosures usually are made sometime after the property has been taken back and then been on the market for a while. This is also a safer time to buy this type of property because, in most cases but not all, title matters that might negatively affect the property will have been cured and most lender/owners will purchase title insurance at the time of the sale. Initially, the lender will try to get their money back so the asking price will be at least what was owed on the property plus penalties, interest, legal fees and other expenses of the lender. Getting that price rarely happens so the lender/owner will then begin to reduce the price. The main thing to remember is that the lender/owner does not want to own the house for any extended length of time. Sooner or later, they will get realistic or frustrated and a "deal" can be made. Sometimes the deal does not manifest itself until an offer is made, meaning that the asking price does not go down that much but a "low ball offer" gets accepted, sometimes much to everyone's surprise including the listing agent. A low ball offer on the first day of the listing will most likely not be accepted but one on a home that has been on the market for four to six months might fly. Sometimes people pay too much for foreclosures because they think anything less than the asking price is a "good deal". So if one is waiting for the time to pass so the lender/owner will soften up and someone comes in and pays more than they probably should have, then the opportunity is gone. Whether the price is a "good" one depends on what homework has been done by the buyer.
Dealing in foreclosures is a risky game. It takes money because cash buyers get preference since they can move faster than someone who must get a loan to buy the property. Usually there are repairs needed to be made to make the property livable which requires more cash. Some lenders will not complete a loan unless the home's physical deficiencies have been repaired which most lender/owners will not do. Therefore a cash buyer has a leg up on someone who has to get a loan.
Sometimes needed repairs are not apparent until one starts really inspecting the house. People who deal in foreclosures are usually, by necessity, handy and experienced in fixing things or have skilled persons available to them who are handy. They also usually assume that there will be unanticipated repairs and provide for them when they do their analysis of what to offer on the property.
In summary, working foreclosures can be a way to make money or find a house to live in; but like anything else, it is not always easy money. Seeing the success stories on TV or hearing about them from friends always makes it sound easy but I can assure you it is not. Please feel free to give me a call if you have any questions.
Dick White (208) 634-7500