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Buying a Foreclosed Home Is Risky, Avoid These Mistakes

03.25.2021 by Harry //

The housing market has been improving over the last year, but homebuyers still need to be careful when purchasing a property that is in foreclosure.

Foreclosures are a hot topic, and while you may feel like they are a good buy, there are some things to avoid so that you can be satisfied with your home.

It’s always a good idea to be prepared, but buyers need to do their homework before making an offer on a foreclosed home they are interested in.

First-time and experienced home buyers alike often make mistakes when choosing properties in foreclosure by forgetting key details or rushing into deals too quickly.

https://www.wisebread.com/7-things-you-should-know-before-buying-a-foreclosed-home

Buying a foreclosed home can be a smart, real estate investment. However, there are plenty of pitfalls that can turn your property search into a disaster.

Below are 5 Things to Avoid when you’re looking for foreclosure homes:

  1. Timing Issues
  2. Hidden Costs
  3. Property Maintenance
  4. The Buying Process
  5. Additional Risks

During a foreclosure, you have a great opportunity to get a home for the cheapest price possible.

However, some people fall prey to later buyers’ scams and other foreclosure red flags when buying a foreclosed property. If you want to avoid getting involved in similar scams and find a great opportunity that will help you save money, then keep reading.

What Does It Mean to Buy a Foreclosed Home?

Foreclosed homes are part of an inventory of properties owned by banks and other mortgage lenders. This lender inventory is often called the “REO” or Real Estate Owned inventory.

When you purchase a foreclosed home, it means the house has been taken through an auction by a bank or other lender.

They might have lost patience waiting for the owner to pay back some of what they owe and decided to sell it at a loss. Or, they might be stuck with a property that is worth less than what they lent on it and get nothing if there is no buyer.

People who want to buy foreclosed homes must act quickly. Banks that own foreclosures typically sell at a discount, and they quickly sell off inventory.

If you find just the right property at a great price, it might be gone before you know it.

So What Do You Need to Look out for?

1. Timing

Because a foreclosure doesn’t sell the property directly, more paperwork is involved. Each step in the process requires additional documents and signatures.

The mortgage documents must be reviewed, signed, and delivered.

Work with your attorney to set a closing date and then work with your real estate agent and the seller’s agent or broker to coordinate the closing date with other contingencies.

2. Hidden Costs

Foreclosure and real estate professionals call these homes “distressed sales.” And the prospect of buying distressed property gives many people a chill.

These days, scores of would-be homeowners are frightened away by the prospect of having to contend with a foreclosure time bomb. For example, this scenario here…

The property you seek could have substantial hidden costs that can result in tens of thousands of dollars of expenses─and those costs could be coming out of your pocket.

The problem originally stems from a lack of transparency on the part of banks and other lenders as well as real estate professionals who aid them in selling foreclosed homes.

The reason for buying a foreclosure property is to save money and make the investment viable. This will not happen unless there are repairs done and they are done professionally.

3. Maintenance of the Property

If you’re thinking of purchasing a foreclosed property, you must consider the potential for problems during any property inspection and thereafter.

When you make an offer on a home that’s in dire need of repair, you’re going to want to know what the maintenance will cost.

Bigger issues, such as structural integrity, can usually be discerned from a home inspection. Smaller concerns will only be revealed upon close inspection and living at the property.

You can avoid costly maintenance problems by:

  • Using a professional home inspector before you buy it.
  • Measuring and inspecting for asbestos or other toxins.
  • Making sure the property has no water damage.
  • Finding out whether mold is present in the home might cause future health problems.

When buying a foreclosed home, finding out the condition of structures and systems like the roof, plumbing, electrical, and heating/cooling system is critical.

I will help you navigate through these conditions to identify if they are repairable or not and help you discover the true value of this home.

4. The Buying Process

By definition, foreclosed properties are discounted because they are bank-owned. A foreclosure home purchase can also involve some hiccups.

All of the hassle and stress that go along with buying a foreclosed home can be frightening, especially if you are the one who has to do all of the paperwork.

Purchasing a foreclosure can also be somewhat risky.

There is no title insurance in the process, and the last owners may have left unpaid debts that you could inherit. On top of that, the foreclosure process is long and complicated

One of the biggest roadblocks that you may run into when it comes to buying a foreclosed property is that the seller may not be willing to transfer ownership to you.

When this happens, it’s called a title defect.

The seller won’t be willing to transfer ownership if the previous owner defaulted on their payments, and didn’t pay off the balance due.

If you’re lucky, they may have an escrow mechanism in their probate documents allowing them to hold onto a percentage of the sale as payment toward what’s left on the mortgage.

5. Additional Risks

Foreclosures allows you to make an offer on a home at its current market value.

Because the sale is non-contingent, you won’t have to compete with other buyers and can enjoy some peace of mind that there are no strings attached.

https://www.zillow.com/foreclosures/buyer/mistakes-to-avoid-when-buying-a-foreclosure/

A property can also come with liens (or unpaid bills relating to the property), code violations, or title issues. You need to research the property thoroughly before making an offer and make sure the seller’s disclosure is in order.

To avoid surprises, it’s important to consider the purchase price alone is just part of the overall cost of buying a house.

Factor in closing costs (the fees associated with transferring or recording property ownership), mortgage interest, property taxes, ongoing maintenance costs, and any liens or unpaid bills associated with the property.

Image credit: Scott Webb

Categories // Housing, Mortgages

5 Things to Avoid When Buying a Home in Foreclosure

02.16.2021 by Harry //

It’s everyone’s dream to be able to own a house. Many people will look for opportunities to achieve this dream at an affordable cost, and this could sometimes mean buying a home in foreclosure.

For many homebuyers, getting a foreclosed home is an attractive proposition. This is because most foreclosed homes are sold at a low price.

What Is a Foreclosed Home?

A home that is in foreclosure is a house that has been returned to the bank and put up for sale again.

When a homeowner fails to pay the payments on a mortgage and it defaults, then the bank has a right to foreclose on the house.

All mortgages stipulate a lien on the house or property. The lien gives the bank the right to take the property. All of this is perfectly legal.

While the circumstances that lead to a foreclosure can be a sad thing (usually, the homeowner experiences financial difficulties that prevent him or her to pay the mortgage), the bank has the right to take control of the property and sell it to offset any losses on their part.

The Process of Foreclosure

Several significant stages would lead to a home being foreclosed.

Defaulted Payments and Bank Notice

When the homeowner fails to pay the mortgage even just once then it is already recorded as a payment default. When this happens the bank will send the homeowner a notice of default within 90 days after the missed payment is recorded.

Usually, the bank will still allow the homeowner to arrange for a revised payment plan to avoid foreclosure.

Notice of Sale

When the default payment is not resolved, then the bank will begin the process of selling the property. The bank will file the notice of sale with the state and will also publish the details of this sale in a local newspaper.

For people who are looking for a foreclosed home to buy, these announcements are how they find out about properties for sale.

The Sale

The bank now proceeds with selling the property. Sometimes, a public auction is done to sell the property.

Bank Ownership

If the foreclosed property is not sold, the bank will effectively own the property. They will continue to offer it for sale. For foreclosed property buyers, this stage is the most optimal stage to signify interest to buy.

The Benefits of Acquiring a Home in Foreclosure

There are many benefits to buying a foreclosed home, but make sure to avoid some common mistakes.

Really Good Prices

A foreclosed home will most undoubtedly have a very attractive asking price. Most foreclosed properties are sold below market value.

The reason for this relatively low price is because the lender or bank can only get a return on the money that was poured into the loan by selling the home. They need to put an attractive price so that it will sell.

Simple Title Process

A foreclosed home will not necessarily have a clean title because you still need to pay off the property.

But a foreclosed home will mean that the bank will take care of all the title issues and will be the one to clear the title on your behalf.

Pitfalls to Avoid When Buying a Foreclosed Home

While buying a foreclosed home has some attractive benefits, there are also some things you need to avoid. Do watch out for these five things so you won’t have to deal with any headaches.

Issues with the Property

Almost all foreclosed homes on sale are sold on an as-is basis. This means, what you see is what you’ll get.

While there are certain houses in foreclosure that are well maintained, you need to be aware of the reality.

For example, there’s a huge likelihood that the general upkeep of the property has been neglected by the homeowner. If they can’t keep up with mortgage payments, they surely won’t be able to find the money for repairs and maintenance of the house or property.

Another factor here is the emotional state of the homeowner. The homeowner and his family will likely have ill feelings towards the bank for having foreclosed on their home.

It won’t be an isolated case to know that the homeowner will vent his frustrations and ill will on the house. Vandalism of the property itself is not out of the picture.

Unexpected Costs

Be diligent and avoid any sudden costs or expenses that will come up in the process of buying a foreclosed property.

Some costs are something you can anticipate. For example, repairs on the property or any renovations.

But some costs may be unexpected. These costs usually revolve around sudden fees you need to pay. For example, back taxes or liens.

Maintenance

Maintenance issues were mentioned above as a hidden cost but it needs to be emphasized as a serious pitfall that needs to be avoided.

You don’t want to buy a foreclosed home and then, later on, find out that the maintenance needed to make the house livable for you and your family will cost a fortune.

Invest in a good inspection of the house to ensure your peace of mind. You can hire a home inspector who will provide a complete report on the property.

This report will include the mechanical and structural components of the property.

Squatting

The property you’re eyeing may be for sale already but it doesn’t mean no one is living there anymore.

Some foreclosed properties have not been occupied for a while and this could attract squatters.

When you buy a property and then find out afterward that someone has been squatting there, you’ll have to legally evict them. This is the law and applies to everyone, even if the squatter doesn’t have a legal right to live there.

Legal evictions can cost a lot of money if it drags on so avoid this as much as possible.

Security Problems

Security is another thing you need to ensure when you have bought the property. Avoid any security problems that can threaten your safety and that of your family.

Have all of the locks changed immediately. Have a security expert do an inspection of the house and make recommendations on how to secure your property.

Bottomline

Owning a house is an achievement and a dream for many people. A foreclosed home can provide you with your dream property at an affordable price tag.

But avoid the pitfalls associated with homes in foreclosure so you can enjoy your new home without having to worry about anything.

Image credit: BADGSk3Wwk0

Categories // Housing

Five Reasons to Use a Real Estate Agent to Sell Your House

01.07.2013 by Kevin Mercadante //

5 Reasons To Use a Real Estate Agent To Sell Your HouseA good friend of mine from some years back—a real estate agent—used to tell me that a real estate agent is “one step above a used car salesman”. I never argued the point, it sounds about right, at least in how the public perceives the occupation. Most people, I think, see real estate agents as people who do very little work but collect a fat commission at the closing table.

In the post real estate meltdown world we now live in, my guess is that public contempt for real estate agents is even greater now. The steep decline in house prices across the country has made paying a realtor commission even more difficult to swallow. After all, why pay a realtor a six percent commission to sell a house that’s already declined in value by something on the order of 20% to 50%?

Actually, there are a whole bunch of reasons—at least five that I count—why you’d want to use a real estate agent to sell your house in this market.

It’s a buyer’s market—and you’ll need every buyer you can get

A buyers market is not the time to cut real estate agents out of the picture. In fact, you need them now more than ever! Buyers are harder to find than ever, and real estate agents have far more than any of us can ever come up with.

One reason is that they’re active in the real estate market. That gives them more potential buyers. People who call in on another property may end up buying yours, and that’s something you want to tap into.

Then there’s the multiple listing service, or MLS. This is the real estate agents ace in the hole, and the primary reason why anyone would list their home with an agent and pay a commission. Because of the MLS, real estate agents have access to more properties for sale, which also attracts potential buyers. It’s not an exaggeration to say that if your house isn’t listed on the MLS it isn’t really for sale.

You have better things to do with your time

Selling a house is time consuming. You have to market the home, hold an open house (or two or three), show the property to prospective buyers, take phone calls, and manage ads— it never ends. Usually, when you’re selling one house you’re in the process of buying another, or even relocating to a different city. That takes up a lot of time by itself, and will leave little for selling your present home.

A real estate agent can shield you from all of that. They take the phone calls, arrange showings and the open house, handle negotiations, and can market the house better than you can. They have pretty yard signs, professional looking flyers, and often maintain ad blocks in the newspaper or on the internet that they can easily add your property to.

All of that frees up your time to prepare for your upcoming move.

An independent marketing service

This is a more important advantage than most people know. Homeowners make poor sales people when it comes to selling their homes. That’s also the reason why real estate agents will ask that you not be home during an open house or during any showings.

Most buyers feel uncomfortable when they’re looking at a house when the owners are there. They’ll be afraid to open doors, look into crevices or ask critical questions. Most times they’ll move on to another property if the owners are home.

A real estate agent will take you out of the marketing phase of the home. Your job will be to keep the house need and tidy for lookers, and then to disappear when they arrive. The real estate agent will have a better chance of selling your home that way.

Handing the technical details

There are quite literally dozens of technical details when it comes to selling a house. Consider some of the following:

  1. Writing effective property descriptions and ad copy
  2. Writing up and amending contract offers
  3. Coordinating attorneys, title companies, home inspectors, appraisers and other vendors who will be involved at some point in the process
  4. Pre-qualifying buyers and recommending mortgage lenders
  5. Setting up and managing the closing process

Most of us are completely unqualified to handle any of these functions, or to know at what point in the process they need to be done.

A built in third party negotiator

Abraham Lincoln said “a man who represents himself (in court) has a fool for an attorney”, and the same can be said for a homeowner when it comes to negotiating the sale of his home.

Here’s the basic problem: as the owner of the home you’ll be anything but objective in the negotiations. As a result you could lose out on a perfectly good offer. Too much emotion is connected to a house for the owner to negotiate its sale effectively.

A real estate agent isn’t the owner of your home, and that leaves him or her with a clear head for negotiations. The agent is representing you in the sale of your home and all efforts in the negotiations will be tailored toward that end.

When ever you get involved in high level negotiations it’s always best to have a third party as a mediator. That can keep the emotion-driven side comments and objections in the background while the parties agree to agree. By contrast, direct negotiations between buyer and seller have the real potential to get ugly. That will be the end of what could have been a perfectly good sale.
A six percent sales commission is hard to swing when house prices have already fallen. But the cost of not paying it can result in a home that takes much longer to sell, or maybe never sells at all.

What do you think about using a real estate agent to sell a house in this market? Do you think you could do better on your own?

Categories // Housing Tags // real estate, sell, short sale

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