Oct 17, 2008

How NOT to buy a foreclosure

So you want to get a great deal on a property and figure buying a foreclosure is a good opportunity right now?

It could be - if you know what you're doing. That means showing up at the courthouse on the first Tuesday of the month with cash in hand and your homework done. The investors getting the best deals on foreclosures right now typically do this regularly and they have a real estate team that does the research on a property before the gavel falls.

A true foreclosure is auctioned off with a starting bid set by the institution who owns the note (mortgage on the property). Here is the reason for the big IF you know what you're doing.
Lets say a property is coming up for auction for $280,000 with an estimated value of $400,000. Sounds like a deal, right? Owners paid $370,000 for it 3 years ago so the $400,000 value sounds reasonable.
But what you don't know is that they overpaid and the property was actually worth $350,000 and hasn't appreciated. The angry owners who were being foreclosed on have stripped the house (and this is common) of all appliances, cabinets, light fixtures, copper wiring, etc, so that it would now be worth about $310,000. Soon the $280,000 price tag isn't looking so attractive. And what you don't know is that there is a $9,000 mechanics lien on the property, $3,000 in city charges and fines for the unkept lawn, and the bitter owners poured cement down the plumbing and destroyed the air conditioning system. But there you are with $280,000 cash ready to scoop up this money pit (disguised as a bargain).
Another way to buy a foreclosure is from the lending institution who has placed it up for sale on the open market. The process can be frustrating and time consuming, but could be a financial bargain. At least in this scenario you can get an inspection, appraisal, title search, ... and guidance from your own buyer's agent. And you can take advantage of the low mortgage rates to finance the transaction.
My colleague Kyle Rovinsky, is an expert in the foreclosure purchase process. He knows that foreclosures usually need a lot of work. They don't come move-in ready. If you enjoy the challenge of remodeling, this could be ideal for you. If you're not up for the effort, go elsewhere.
So if you're looking for a bargain property, get your own buyer's agent and tell your agent that you're looking for a bargain - which may or may not be a foreclosure. [where: 75230]

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