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Anyone buy a foreclosure?
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StarsStripes
LIF Adult
Member since 12/12 1192 total posts
Name:
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Anyone buy a foreclosure?
We are house hunting and not finding anything we love. We see a bunch of foreclosures and pre-foreclosers we like but know nothing about the process.
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Posted 3/7/17 8:29 PM  |
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Re: Anyone buy a foreclosure?
Well, first, I would clarify what you mean by foreclosures and pre-foreclosures.
Something can be on the way to foreclosure (there are legal proceedings in process by the bank, but it hasn't yet been foreclosed on), yet not on them market or for sale. Zillow lists "pre-foreclosures" - which really just means that someone is more than 3 months behind on their mortgage payments, and the lender that holds their mortgage has filed a lis pendens, which is the first step in the foreclosure process (which is a very lengthy process in NY, where we have judicial foreclosure). If someone were to decide to sell their home, they would often have to be short sales, meaning the seller owes more than the home is worth in the current market.
Short sales are typically listed on MLS. They can be challenging for a buyer because there is a lot of uncertainty (as to what price the lender will actually accept, when you can close, etc.). And they are most often "as is" sales, meaning that you cannot negotiate any repairs (the seller typically has no money and the bank holding the seller's mortgage is already taking less than what it is owed on the loan). Short sales have often been neglected over time and may have hidden issues (as well as obvious ones). The uncertainty stems from the fact that the seller's lender must approve the short sale, but they often don't even look at the transaction (or know that the home is on the market) until the buyer and seller are in contract. So there's no guarantee that they will agree to accept the price you offered to pay (the seller will usually agree because they are not getting any sale proceeds, anyway, just loan forgiveness). And even when the bank does eventually approve the sale, it usually takes several months (I've had short sales drag out to almost a year) to close.
After a bank forecloses on a house, it will try to sell it via auction on the courthouse steps. These auctions are really more for investors, not the average buyer, as you typically must buy the house sight unseen.
If a bank cannot sell a house on the steps, these foreclosed upon houses come back on the market (are listed on MLS) as REOs, or bank-owned properties. There are specific rules that must be followed in buying these, and slightly different procedures, but you just deal directly with the bank, so you don't have the uncertainties you have with the short sale process.
But it's very hard to compete with the all-cash buyers and investors. As prices have risen, the investors are always on the lookout for good deals.
It's also worth noting that distressed properties that are listed on the market -- short sales or REOs -- are not steals. With as short sale, the banks very often want close to market value, and with the REOs, the banks have already incurred the cost of foreclosure so there's usually not much negotiability. And then there's the cost of waiting such a long time to close (with a short sale), when rates may go up, you may have to extend commitment. And the potential cost of renovations and repairs that are often needed, and sometimes not known until after you close.
I handle short sales on the listing side, but I generally advise buyers to steer clear, unless they are experienced investors, flippers, builders, etc.
Message edited 3/7/2017 8:45:16 PM.
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| Posted 3/7/17 8:44 PM |
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StarsStripes
LIF Adult
Member since 12/12 1192 total posts
Name:
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Re: Anyone buy a foreclosure?
Posted by Christine Braun - Century 21 American Homes
Well, first, I would clarify what you mean by foreclosures and pre-foreclosures.
Something can be on the way to foreclosure (there are legal proceedings in process by the bank, but it hasn't yet been foreclosed on), yet not on them market or for sale. Zillow lists "pre-foreclosures" - which really just means that someone is more than 3 months behind on their mortgage payments, and the lender that holds their mortgage has filed a lis pendens, which is the first step in the foreclosure process (which is a very lengthy process in NY, where we have judicial foreclosure). If someone were to decide to sell their home, they would often have to be short sales, meaning the seller owes more than the home is worth in the current market.
Short sales are typically listed on MLS. They can be challenging for a buyer because there is a lot of uncertainty (as to what price the lender will actually accept, when you can close, etc.). And they are most often "as is" sales, meaning that you cannot negotiate any repairs (the seller typically has no money and the bank holding the seller's mortgage is already taking less than what it is owed on the loan). Short sales have often been neglected over time and may have hidden issues (as well as obvious ones). The uncertainty stems from the fact that the seller's lender must approve the short sale, but they often don't even look at the transaction (or know that the home is on the market) until the buyer and seller are in contract. So there's no guarantee that they will agree to accept the price you offered to pay (the seller will usually agree because they are not getting any sale proceeds, anyway, just loan forgiveness). And even when the bank does eventually approve the sale, it usually takes several months (I've had short sales drag out to almost a year) to close.
After a bank forecloses on a house, it will try to sell it via auction on the courthouse steps. These auctions are really more for investors, not the average buyer, as you typically must buy the house sight unseen.
If a bank cannot sell a house on the steps, these foreclosed upon houses come back on the market (are listed on MLS) as REOs, or bank-owned properties. There are specific rules that must be followed in buying these, and slightly different procedures, but you just deal directly with the bank, so you don't have the uncertainties you have with the short sale process.
But it's very hard to compete with the all-cash buyers and investors. As prices have risen, the investors are always on the lookout for good deals.
It's also worth noting that distressed properties that are listed on the market -- short sales or REOs -- are not steals. With as short sale, the banks very often want close to market value, and with the REOs, the banks have already incurred the cost of foreclosure so there's usually not much negotiability. And then there's the cost of waiting such a long time to close (with a short sale), when rates may go up, you may have to extend commitment. And the potential cost of renovations and repairs that are often needed, and sometimes not known until after you close.
I handle short sales on the listing side, but I generally advise buyers to steer clear, unless they are experienced investors, flippers, builders, etc.
Wow thanks for the great information! This really clarifies a lot for me!!
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| Posted 3/7/17 9:53 PM |
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Diane
Hope is Contagious....catch it
Member since 5/05 30683 total posts
Name:
D
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Re: Anyone buy a foreclosure?
I bought a short-sale. It went through pretty quick.
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| Posted 3/8/17 8:05 AM |
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OhMaybeBaby
LIF Infant
Member since 1/13 337 total posts
Name:
J
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Re: Anyone buy a foreclosure?
I bought a short sale. It's not for the faint of heart. We were under contract for 9 months, then ended up in the last minute being required by the seller's 2nd mortgage bank to pay 10K over our agreed upon price. THEN it came out that the seller owed 10K in back taxes that if we wanted to close, we'd have to cover. We did.
In the end we LOVE our home. It was in major disrepair but the bones and location were worth every tear cried and dollar spent. We were lucky that we were in a month-by-month apartment that allowed us flexibility while we dealt with the short sale process. Not sure how someone would buy a short sale without that sort of flexibility.
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| Posted 3/8/17 10:43 AM |
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Lauren82
LIF Adult
Member since 10/06 4580 total posts
Name:
L
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Re: Anyone buy a foreclosure?
My husband buys foreclosures at auction and REO through his business. It is hard because you don't always know what you are getting and he does lose out on houses he really wants when someone outbids him or puts in offers before he does. Our next house will definitely be a foreclosure that we will renovate ourselves.
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| Posted 3/8/17 5:23 PM |
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StarsStripes
LIF Adult
Member since 12/12 1192 total posts
Name:
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Anyone buy a foreclosure?
One more question...of we buy a house for let's say $300k and want to put 200k into the house to redo...how do we borrow that money! Can we role it into one mortgage of 500k?
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| Posted 3/8/17 9:02 PM |
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Re: Anyone buy a foreclosure?
Posted by StarsStripes
One more question...of we buy a house for let's say $300k and want to put 200k into the house to redo...how do we borrow that money! Can we role it into one mortgage of 500k?
If you want to finance the cost of renovations, you could take a rehab/renovation loan. In fact, if the house really needs a lot of work (as many short sales/foreclosures do), you may not be able to secure a regular mortgage. Many times, these houses will say they require a cash loan or a rehab loan.
The most common rehab loan is an FHA 203(k) loan. There is a streamlined version (with less steps, red tape) if you are capping your renovations at something like $30K (or it may be $35K now, I'm not sure). As long as you have $5K worth of renovations, you can get this loan and use it for even minor renovations (flooring, appliances, etc.).
More than that, you would get a full 203(k) loan. You would have an FHA planner assigned to your case, you would need to get your architect, contractor, etc. on board. The house has to appraise for current value and also post renovation value. The interest rate is a bit higher on the portion that you are borrowing for renovations, I believe. You would close on the house, but then the bank would dole out the renovation money as the work proceeded post closing, in increments. But you do need to use properly licensed people who meet the standards of the lender/loan requirements. You don't get a lump sump of money to then be a weekend warrior or have an unlicensed friend do it. You have to do everything "by the book."
There are similar loan products offered by particular lenders, too. Wells Fargo, for example, has a renovation loan.
You should really speak to a mortgage lender to learn more and get your ducks lined up before you jump into this. Let me know if you need a recommendation! I've worked on deals where 203(k) loans were being taken to add dormers, do garage conversions, etc.
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| Posted 3/9/17 9:31 AM |
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dani731
Blessed!!!
Member since 1/08 3355 total posts
Name:
D
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Anyone buy a foreclosure?
I just closed on my bank owned REO on Wednesday 3/22/17.
We were extremely lucky and the process was pretty quick and painless. Working with the right people is what got us through it all!
We did the SONYMA REMODELNY mortgage with M&T Bank. Despite M&T's reputation of being slow, they have been making changes to improve their processing and my loan processor Kelly was amazing! The loan officer Anthony was great as well. Everyone kept stressing how renovation loans take at least 90 days to close. Some even said it could take 120 days. Contract execution date was 1/11 and mortgage application date was 1/18. I actually didn't sign the application until 1/20 and we closed 3/22. That is 70 days from contract date and 61/63 days from mortgage application depending on which date you want to use.
Anthony the Loan officer said that this was by far the fastest renovation loan he had ever done so I know we are the exception and not the norm but don't let anyone scare you out of pursing something you want.
I almost walked away from the deal before signing the contract. We were in the lawyers office and everyone kept saying that it might not happen. The loan will take too long and the bank that owned house will not wait because they are used to 30-45 days closes. It was my husband that convinced me to have faith. That god was on our side and that this house would be ours. I am so grateful for my husband because he was 100% right!!!
We used Beth Lowe as our buyers agent.
Murtha Construction is doing the renovations and they already completed demolition yesterday.
Do you have any specific questions? I can try my best to answer them...
Message edited 3/25/2017 10:58:14 AM.
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| Posted 3/25/17 10:48 AM |
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summertime
LIF Adolescent
Member since 9/10 852 total posts
Name:
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Re: Anyone buy a foreclosure?
IF no one buys the house at Auction and the bank sells REO. How do they get the homeowner out if they are still living there?
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| Posted 3/28/17 10:58 AM |
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MrsT809
LIF Adult
Member since 9/09 12167 total posts
Name:
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Anyone buy a foreclosure?
We bought a short sale back in 2007. It felt like forever but we closed in just under 3 months. The seller had abandoned the house and moved out of state giving their lawyer power of attorney. Everything was as is including whatever crap they'd left behind.
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| Posted 3/28/17 11:21 AM |
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