Foreclosed Property

I’m looking to be a first time home owner and was interested in learning more about pre/foreclosed property/ REO and short sales. Does anyone have any experience or know any good things to read to find out?

It’s a pain in the ass for several reasons. First you have to be able to close all cash and even if a bank “accepts” your bid you have no certainty that they’ll close and the bank will drag it out at their leisure – probably with your deposit in their pocket. Also you may not have the chance to do your due diligence if you’re bidding at a foreclosure sale. That is potentially very dangerous if you don’t know your risks. People do crazy, stupid things with their houses that you may end up holding the bag on if you don’t get a chance to peel back the onion before closing.

Not worth it IMO.

Used to work in this area – we acquired sub-prime mortgages in bulk, securitized them, and sold to the institutional idiots back in the golden age of mortage stupidity. The stuff would go delinquent and then thru various stages, sometimes resulting in short-sales and such.

You know, even after working with this stuff, it’s super vague…I never did understand the procedure for the guys on the other end acquiring this stuff. And none of us on the selling end knew what the property was worth, basically the staff just called the boss and were like “yo, can we sell it for like 5 bucks” and he’s like “naw man 6 bucks or no deal”. Umm okay, did he even look at the property? No. Probably some people were getting deals, if they figured out how to navigate the confusing system, and knew what they were actually buying. That’s probably not helpful…

I’ve had a couple of family members work through a short sale to a purchase but there were a handful of suprises that they had to spend a TON of time navigating through to make it worthwhile from a return respective. They made a great return but it was work and a lot of deal-making. They were not first time buyers nor looking for “move in ready” with their expectation being aligned with a lot of work and potential disappointment.

If you’re a first time buyer without experience i’d suggest being very very cautious.

It depends. if the property is already bank seized+ former owner vacated, it can go fast. And banks will typically price it to go fast. Usually the condition won’t be that good

I’ve purchased one foreclosure and tried to purchase a couple of short sales. The foreclosure was not nearly as bad as the picure Turd painted, but every situation is different. In our case, the house had already been foreclosed upon, was under the “care” of a property management company, and was listed with a local realtor. The house was sold as-is, but we were still allowed to have a home inspection and tour the house ourselves multiple times. The house did have damage from a water leak and several things turned up in the inspection that we factored into our offer. The bank also accepted our offer in a reasonable amount of time. All-in-all, it wasn’t that different of a process than buying a non-distressed property. Again though, every transaction is different and we might have gotten extremely lucky.

The short sales were a different story. The most important thing to keep in mind about short sales is that the person who is losing the house sets the price and markets it, not the bank. It is a very common tactic to price really low in an attempt to create a bidding war, but the bank still has to accept the price for the deal to close. So, you can jump through all the hoops negotiating with the “seller” and still have the bank say no and in the case of short sales the bank almost always takes a very long time to say yes or no (often months).

Foreclosure or short sale, it is important to have a realtor who has experience with that type of transaction and can guide you through it based on his/her experience. Any idiot can print out comps for you and open a lockbox, but you need more than that as a first time buyer and especially if you’re considering distressed sales.

Thanks Higgs. Now I’m going to be thinking of Al Gore all day.

^ Strategery

I purchased a foreclosure. The difficult thing with foreclosures is that you are usually negotiating with a bank and this can take time and patience. They are usually sold as is so get a home inspection to find out if there are any big issues with the property.

With a short sale, you have to be careful because the seller has to negotiate with their lender for relief on the deficiancy. The lender needs to verify that the homeowner cannot continue to pay the mortgage and determine that a short sale is better than foreclosing on the property. Pain in the butt.

This is all great, useful information. What about the pre-foreclosure period. I was thinking of actually going to their house and making an offer above what they paid for it, yet below market prices. Win win to me and it would probably create coorperation to allow me an inspection.

^while on that point, would I use a RE agent for pre-foreclosure since there is a chance no broker is used?

How do you find these foreclosed properties? Do you have to just have an agent look for it, or is there some kind of database?

I live in Southie (think the movie Black Mass but gentrified) and i’ve seen a few notice of foreclosures on doors. I went to the county clerk’s office and pulled the records. They have names, addresses, prices paid. Trulia and zillow also publish this info but its usually behind the game

One thing you have to be careful of in a pre-foreclosure is that there might be other liens against the property (unpaid property taxes and HOA fees most likely), so be sure you get a good title company and excellent title insurance. If the property has already gone through the foreclosure process, those things will have most likely been resolved already (still be sure to have a title search done though and get title insurance).

The clerk should also have their mortgage on file, so you can find out how much they originally borrowed.

Thanks Hig! Do you know, is there any incentive for a RE agent to work on behalf of someone seeking a pre-foreclosure? I have a few RE agents working on my behalf for normal MLS listings but i’m reluctant to bring them up-to-speed on deals such as this bc I think, assuming they do not get paid, it may act as a de-incentiver for them working for me.

They will want to get paid by someone and will require you to pay them if the seller won’t. If you’re not prepared to pay them a commission out of your own pocket, I wouldn’t even tell them that you’re looking at pre-foreclosures on your own. If they know there is a possibility of you purchasing a home on your own, or even with another realtor, they will put you at the bottom of their priority list. I assume you have not signed any buyer’s agreements with any of them? If you have, read them very carefully. Also, be careful about using multiple realtors, as you don’t want to get into a situation where you find a property you like and two different realtors claim to have provided you the listing.

If you’re able to negotiate a deal on a pre-foreclosure with the homeowner on your own, all you really need is a title company and/or a real estate attorney to help you with all the necessary paperwork, escrows, etc… The purchase agreement is likely standard statewide, so I’m sure you can find one online somewhere.

Also short sales and foreclosures are likely in shtty parts of town. Do you really want to live near the meth labs and crack houses?

^Not necessarily. A lot of foreclosures happen when wannabe millionaires count their chickens before they hatch. They buy a house they can’t afford with money they think they’ll have in the future. Then, when the money doesn’t actually materialize, they can’t make their house payment.

There are quite a few in very nice parts of New York where I live. Those properties are typically scooped up by people who specializes in those things, very tough competition. I think buying a fixer upper is probably more of a bargain and less of a pain in the ass with proper inspection and cost assessment.