Purchasing Foreclosures

FORECLOSURES

Many home buyers associate buying a foreclosure with getting a deal. This can be true, but there are potential pitfalls. Foreclosure is a process with four distinct phases. The terms and length of each phase vary by state and sometimes by lender. The pros and cons of buying a home involved in foreclosure vary with the phase of foreclosure the property is in when purchased.

PHASE ONE: MOTIVATED SELLER (MISSED MORTGAGE PAYMENTS)

Buyer Advantages:

Financing available for purchase
Due diligence inspections included in process
Seller obligated to provide full disclosure

Buyer Challenges:

Seller may have little, if any, ability to negotiate price depending on their outstanding obligations on the home

PHASE TWO: SHORT SALE: PRE-FORECLOSURE NOTICE OF DEFAULT

Buyer Advantages:

Motivated seller
Financing available for purchase
Due diligence inspections included in process
Seller obligated to provide full disclosure

Buyer Challenges:

Lender must approve purchase price and terms of sale including any closing cost credits Purchase may take between 45 - 90 days to close

PHASE THREE: FORECLOSURE AUCTION

Buyer Advantages:

Property sold for outstanding mortgage balance owed to foreclosing mortgage holder and therefore the price for the property may be very low
No commissions or attorney's fees paid

Buyer Challenges:

Auction price must be paid in cash; generally no mortgage financing is accepted
As-is sale; no inspections and no disclosures given to buyer
Liens, back taxes and other obligations may be acquired by buyer
Buyer must research title prior to auction

PHASE FOUR: BANK OWNED PROPERTY/REO (REAL ESTATE OWNED BY LENDER)

Buyer Advantages:

Title will be clear and buyer will not assume any liens, mortgage or back taxes of prior owners
Mortgage financing available
Inspections may be conducted
House is vacant
Property listed on Multiple Listing Service (MLS); bank will pay real estate agent commissions
REO sales close within normal escrow timeframe

Buyer Challenges:

As-is sale; no repairs Banks usually require additional paperwork Banks cannot provide disclosures on property history or condition

Many ERA® agents and brokers who specialize in foreclosure properties routinely negotiate with banks and can help you navigate through the process of purchasing a foreclosed home. To learn more, contact your local ERA Real Estate Agent.