Re: Foreclosers on homes?
A foreclosure happens when someone does not pay their mortgage and the bank "forecloses" the mortgage. In other words, the bank sues to take the house and kicks the owner out. Then they have to sell the place, usually by having the Sheriff auction it off at the courthouse. A foreclosure will never sell for less than what the bank is owed. They will bid that much. So whatever bargain there is, it isn't usually much.
Usually a forclosed home will need work. The homeowner if he isn't making the mortgage payments isn't likely to be keeping the place up either. As with anything used, it is very important to check it out very carefully. Think of a used house as a very big used car with the potential to get you into a lot more trouble than a rotten car.
Re: Foreclosers on homes?
Zofia is absolutely correct about forclosed property - it's an analogous situation to repossessed vehicles. However, buying property at an auction greatly complicates the actual purchase unless you have a bank letter of credit for $100,000 in your pocket obtained prior to the auction, based on some asset besides the property (which the bank has yet to inspect, assess, or agree to write a mortgage on).
Re: Foreclosers on homes?
FYI,
You will be fighting other banks for posession of the property. They are not stupid and generally are bidding to make money on it. Also, there are Taxes, and other costs you will have to pay on the property. If you get to an auction and no one (bank or corporation) is bidding on it. Thier is a reason why, and it is always bad so it is best to avoid that property; afterall, you don't want to be the new owner of an EPA Superfund site.
This is the what I remember reading off the "Yahoo" real estate website, when I checked on "Foreclosure Sale" properties.
I hope this helps.
Re: Foreclosers on homes?
agreed, Madgrad. Even if the foreclosed property doesn't have problems with fuel oil in the ground or other massively expensive environmental cleanups, the property may have other problems which make for huge unanticipated expenses. I'm talking about things like a water well or septic system which do not meet local codes, such that a new owner would need to invest an additional unexpected $10,000+ before being able to live in or rent out the property.
You're also correct about back taxes - while the auction will state the particular taxes due to the agency who brought about the auction (like local property tax), there may be other taxes from different jurisdictions (like school tax) which must also be paid before a title transfer can take place.
These sorts of unanticipated problems will also totally prevent a bank from writing a mortgage on the property until these problems are taken care of first. This in turn means that before a potential buyer can count on dollar one of financing, they'll have to come up with the purchase price at the auction plus any back taxes due to any and all jurisdictions plus cash to bring water, sewer, and potentially electric and gas as well, up to current codes, before a mortgage can be written. This means that a potential buyer must be prepared with perhaps $100,000 in cash or other credit besides the value of this property to cover the auction purchase and all of these other possibilities before they can count on getting any of that "money back" in the form of a mortgage/home equity loan.
Re: Foreclosers on homes?
The only bank that will consider giving you a mortgage on a foreclosed property is the bank doing the foreclosure. From what I understand, the only time anyone, other than a very wealthy land speculator, ever buys a foreclosed property at the foreclosure auction is when she has negotiated with the foreclosing bank in advance.
Re: Foreclosers on homes?
be careful how you buy forclosed houses sometimes they might need to be fixed or lets say the previous owner had tenants sometime its hard to get them out and if you buy at an auction they are not gonna tell you if the house needs to bed fixed or that it had tenants..suddenly these become your problems /tenants ...these houses are usually cheaper because the previous owner might have paid off some of the mortgage...but some times houses at auctions might cost way more than they had listed due to the fact that banks sometimes have their own people bidding doing so just to up the price of the house....i think it would be better to get you credit score up make sure you pay your taxes thus you might need 3 years worh of statements you are also gonna need pay stubs and bank statements so do some internet research
Re: Foreclosers on homes?
A good deal of forclosures in our area are gobbled up by groups of realtors that are looking to turn a short term profit. It was explained to me that if a forclosure was on the market long enough for the general public to see it needs serious work. Being a cynical idiot, I had to explore this for my self and looked at a house that was grossly under market value...cool house if you are into 3 foot sink holes in your living room and multi-color wet spot ceilings.
Re: Foreclosers on homes?
Quote:
banks sometimes have their own people bidding doing so just to up the price of the house....
The banks always are at the auction to bid it in at the amount of the mortgage and all of their expenses in the foreclosure action. They may make bad loans, but the banks aren't complete fools.
Re: Foreclosers on homes?
Most of the foreclosed homes that you want to buy that need minimal work with little problems are rapidly snapped up by local real estate agents looking to turn a quick and easy profit. Everybody else gets the rest.
And yes, when I was in the market to my buy my first home, I looked at these "undervalued" foreclosed homes to find myself a starter home. Often what I found were leftover homes that the local real estate agents had already picked through, and often the money that had to be put into these homes just to make them liveable offset any gains you made from the property being "undervalued".
Another thing is that the banks never tell you about foreclosed properties is that people always KNOW when they are going to lose their house...its a process that takes a few months to complete foreclosure. So the tenants of that property have months to trash it, damage it, and completely strip any article of value out of the property before they are kicked out. I've seen houses where all the plumbing, wiring, cabinetry, carpet, and even door, sinks and toilets have been removed!
That is why these homes sell for less, and I would not recommend any FIRST TIME BUYER purchase one unless they had an extensive knowledge of home repair and construction beforehand. First time buyers are better off buying a normal resale home, or even a brand new one if they can afford it.
Would I ever consider buying a foreclosed property? Possibly, but only because I have family in construction and home repair who could look over the property with me and really tell me how much it was going to cost.
Re: Foreclosers on homes?
I should have added, for a first time buyer, you might be better off looking at new homes that have fallen out of escrow at the last minute. These are brand new homes in which the original buyers were unable to get the financing they needed to complete the sale of the house. The homes are often completely finished, and are unoccupied.
There is nothing wrong with these homes, and they may sit on the market for months, and often will have everything installed and are just waiting for someone to buy them and move in. Sometimes they have upgrades in them that you dont have to pay for (i.e, the previous buyer's loss). Many times the sellers in the development will take a loss just to get rid of them.
This was how I got my first home. I got a brand new home that was undervalued at about $15,000, plus it included another $10,000 in upgrades such as tile flooring, wood cabinets, carpeted flooring, garage door opener, etc, that I didn't have to pay for. (Plus I was able to negotiate for free mini blinds to put in all the windows!) I got a brand new home that was completely liveable.
When you go out home shopping and look in new developments, ask the salespeople if they have any homes already "standing," or if any buyers have recently fallen out of escrow, and if any such houses are available.
Re: Foreclosers on homes?
As real estate is trully "real", you have to seperate out which reality you are dealing with
and at what time. Sort of like dealing with your customers.
A loan on any property in the U.S. consists mainly of two elements. A loan note and a
mortgage security interest. We can get boged down in this discusiion on deed of trust states in the south west, or in the SE U.S. the bank actually holds the title in trust until you pay off the loan and then they hand you the title.
This is just legal semantics, and the basic principle of a note and a secured mortgage interest
holds throughout most of the free market world where an individual is allowed to own
property.
The note describes the business deal. How much you owe, what interest rate, how paid,
and shen paid. It also has default clauses which tie into the mortgage document
recorded on the title. (See above on other areas of the country and world.)
If you don't pay, or try to pay in Imperial Russion rubles, you have caused a default.
Not paying at all is a "big D" default. Screwing around with payment methods and strange
currencies will really annoy your lender, but creates "little D" defaults. Little D
defaults are usually curable, and you can usually argue with a court that there was an honest mistake and it will never happen again. This will stop the foreclosure by court order to the lender.
When the note isn't paid the bank will attempt to enforce it's rights to the security
for the loan which is the land and buuilding. This is the mortgage lien or mortgage document
on the title of the property.
Here's where we get into fanstasy land. What is the value of the property?
It is supposed to exceed the balance of the loan. If it exceeds the balnace on the loan
the bank is supposed to sell the proproperty plus any of its cost and the cost to repair
plus overhead, and return the amount that is left over to you the defaulted former
owner. Right... as Dr. Evil would say.
At the foreclosure auction, the bank can bid less than it's mortgage balance and
there are sometimes tactical and logical reasons to do so. In 98 percent of the
foreclsoure cases however the bank bids its balance, and pads every cost in the world
so that there never is any amount of money to return to the former owner.
Say the value is less than the debt. This would be the typical situation in a mortgage default.
The bank will bid it's balance and foreclosure costs and ho[pe that someone outbids it.
Beauty is in the eye of the beholder and someone may see value where the bank does not.
Or it may be a fool not knowing the deal. At any rate the bank doesn't care as
long as it's debt is paid at par.
Typically the foreclosed property is a mess and the value is less than the loan balance.
In this case the safe thing for the bank to do is to bid the
mortgage balance plus limited legal costs and get the title from the Sheirff at the Sheriffs
auction. The value write down is on the loan balance once the title is safely in the banks hand
and is known as a "loss on bad loans." The bank foreclosure
wipes out all other junior liends (except for real estate taxes), and usually cleans
up a messy chain of title and creates a "clean" title.
From the industy and legal point of view, it is generally better form
a large scale society viewpoint fo have the bank foreclosue and by actikon of law
clean up all other conflicting financial claims on the title. (The other claims are wiped out
as a matter of law. All that is left is the title and the banks interest which is converted to
equity.)
"Giving the lender the keys," is a nice phrase, but many lenders want an orderly
procedure and don't want to deal with all the small liens on the title The lender does
not want an unquantifiable and messy title with a bunch of people squabbling
for money. Also the new buyer wants a "clean title." A judicial foreclosure
will clean the title.
Up to this point the money in the sheriffs auction is all accounting and paper and not real. The bank now writes the loan down to true market value after repair and marketing costs and
sells what is left of the asset. Large commercial properties use a commerical appraisal to write down the loan. Houses usually are written down at the actual amount they are
resold for.
Final advice. Be aware of the economic era you are riding in. From my perspective, since
early 2001 this economic era is acting a bit weird.
The value of homes in California in 1991-1993 declined 20 to 30 % from peak prices
paid in 1989-1990. If you bought in at 1985 prices youw ere fine.
Also unlike daily mark to market, you only lose or make money in houses when you
sell. Selling the California house in 1993 from a 1990 purchase price would
give you a 30% loss on investment.
Selling the same house in 1999 would give you a 50% profit. Why???... the market recovered
strongly and in the west coast it goes up faster than in the south east, north east or
midwest. The market out west also tends to go down at a faster rate.
Example: A male friend of mine bought a condo in a suburban town in April 2001
for $189,000. April 2001 was the peak or high point of the market.
The mortgage was $160,000. 60,000 new apartment and condo units are on the market now. The value now is about $152,000. The loan balance is about $158,000 so
he is udner water by $6,000 if he sells. Why ????starter jobs are down. Tech is down.
Demand is down for starter single person condos. Supply is way up.
Single family houses in his area are taking longer to sell but are not showing
declines in value.
We are coming off a peak value situation. I'd be cautious on a foreclosure right now.
Re: Foreclosers on homes?
The best forclosure deals are to be had BEFORE the bank takes the house back. These pre-forclosure homes are hard to find, and once you locate one, you need to find out the loan balance, any back payments owed to the bank, and any back taxes owed. Then you need a home inspection and appraisal. If the home value is more than all of the balances and money owed, go for it. People get rich buying forclosures. If you did 2 homes per year, and sold them at full value when you bought them at under value, there can be huge profit. A friend of mine bought a 3 unit for 235K, put 5K into it, sold it 90 days later for 325K! Thats alot of dough!