Chesni’s Blog

Bookstores are full of books purporting to help people “buy foreclosed properties at discounted prices”. An equal number of websites promise bargains in hot markets, or promote “lists of properties in foreclosure” for a fee. In reality, there are good buys for those who are willing to work at it, but the process of locating properties and working through the legal and emotional entanglements is not for the faint hearted.

For those hoping to find a true bargain in real estate by purchasing a foreclosed home at auction, there are some important points to keep in mind.

Finding Properties to Purchase

• Statistics have often shown that a very low percentage of recorded NODs/Trustee Sales result in the owner actually losing the home to foreclosure. Consequently, there are plenty of agents and professional foreclosure specialists seeking the same properties. In fact, the auctions are full of “bottom of the barrel” properties - the left overs of savvy investors that picked up the good ones before auction.
• NOD/Notice of Trustee Sale lists are available from information service providers or in adjudicated newspapers where they must be published before a sale can take place. Prepare to spend several hours a week doing research of public records and act fast.
• Ask your professional sphere of influence (such as mortgage brokers, attorneys, insurance agents, tax specialists, and accountants) to keep an eye out for possible foreclosure situations.
• Run ads that may attract the eye of people who must get out from under a home loan, such as “I buy houses.”.
• Search the newspaper. Look for classified ads that say “must sell”, “vacant”, “motivated”, or “lost job”.
• Search online classifieds such as Craig’s List (craigslist.com) or Backpage (backpage.com).

Other Expert Tips

• If you want to negotiate a pre-foreclosure sale, remember that property owners who fall behind in their mortgage payments are frequently unable to properly maintain the home, and phones and electricity may be shut off.
• Properties sold at foreclosure sales and auctions are sold “as is”, and must be repaired, often at considerable cost, before they can be resold on the market.
• Potential buyers of auction properties may not have the opportunity to inspect the property before purchase.
• Foreclosure properties may also be encumbered by tax and other liens, which become the responsibility of the owner after a foreclosure sale. It is likely that these homes cannot be covered by title insurance, so research, research, research is the key to uncovering the secrets of a foreclosed property before purchase.

Bonus Tip:

The safest bet for those new to the process is finding REO properties (properties that have been taken back by the lender). They have been cleared of liens and taxes, and any tenants have already moved on. Most large lenders have departments who deal with this type of property.

Tip #1: Free Counseling

Housing counseling agencies sponsored by the United States Government offer valuable resources to help you discover special borrower programs. Most of these services are free of charge. Contact the US Department of Housing and Urban Development (HUD) at (800) 569-4287 or visit the department’s website at www.hud.gov for more information.

Tip #2: Talk to Your Lender

Many lenders offer assistance, but only for those who stay in the home and do not abandon it. For example, the lender may have a special forbearance program to rearrange payments, or even reduce or suspend them for a period of time. The lender may also refinance the debt or extend the term of the loan to make the payments lower.

Tip #3: Avoid Scams

Unfortunately, ther are those who prey upon people in financial difficulty. Most likely, anything that sound too good to be true probably is. To avoid scams it is important for the borrower to:

• Check with a lawyer or the mortgage company before entering into any transaction involving the property.
• Remember that the loan must be paid even if the deed is signed over to someone else. The lender must formally release the mortgage debt.
• Make sure all promises are made in writing.
• Not sign anything with blanks to be filled in later.
• Read and understand all documents before signing.

Tip #4: Taxes Are Still Due

In addition to the damage it can do to a borrower’s credit rating, foreclosure can also cause major tax consequences. Most people assume that a foreclosure will automatically “cancel” taxes, but this is usually not true. That is why it is important to involve a tax attorney or advisor in all considerations of foreclosure and alternatives to foreclosure.

Tip #5: Consult a Licensed Realtor^®

A licensed Realtor^® (not just any real estate agent) will work with you on your various option to avoid foreclosure. Your Realtor^® can assist in a pre-foreclosure sale or even a short sale of the property, which avoids the foreclosure process.