If you are in the market for a home, chances are most houses on the market are foreclosures. The Lawhead Team would like to share some pros and cons involved with buy a foreclosure property.

Pro’s of buying a foreclosure property:

• Buy below value – While the deals aren’t as good as they were in the past, you may still be able to purchase a foreclosed home for three quarters of what a home is worth.
• Faster process – If you find a home in the pre-foreclosure stage, there will be a sense of urgency from the seller to avoid the stigma of a formal foreclosure. You may request inspections on the property prior to making a final decision along with research the title to make sure it is clear of liens.
• You are allowed to inspect a foreclosure before buying it – You will know exactly what you are getting and will be given a predetermined contingency period in which to make your final decisions.
• You may use regular mortgage financing – Even though the process of buying a foreclosure is different from purchasing a regular home, you can still take out a mortgage loan to pay for the property.
• Quicker sale and negotiating powers – The bank will be motivated to get the property sold and may negotiate price, down payment, closing costs, etc.

Con’s of buying a foreclosure property:

• Maintenance issues – Homeowners who know months in advance they are losing their property may be less likely to take care of it and may not have the funds to make necessary repairs. In extreme cases, homeowners may feel bitter about their bad investment and may purposefully damage the property they’ll be vacating.
• Unforeseen repairs – While you may be able to buy a foreclosure home below its market value, that doesn’t mean you may be getting the best deal when you consider major repairs that may need to be done.
• No warranty available with a foreclosure – A foreclosure is sold as is with no cause for recourse if the home has defects. If the home has been lived in already you may be more likely to have issues that won’t be discovered until you’ve moved in.
• You may incur the previous owners cost of neglect – When purchasing a foreclosure, keep in mind the previous owner couldn’t afford to keep it. In this case, it is possible a lien may have been placed against the home which becomes your responsibility once you’ve purchased it.  Do a title search before committing to buying a foreclosure to uncover any liens.

Do you have questions about purchasing a home in the North San Diego County area? Contact The Lawhead Team for all your buying and selling needs.

In the market to buy a home?  There are a lot of REO, Real Estate Owned, properties out there and The Lawhead Team would like to share with you some basic information on REO’s so you know what to expect when looking at one to put an offer on.

An REO is a property that goes back to the mortgage company after an unsuccessful foreclosure auction. You see, most foreclosure auctions do not even result in bids. After all, if there was enough equity in the property to satisfy the loan, the owner would have probably sold the property and paid off the bank. That is why the property ends up at a foreclosure or trustee sale.

Foreclosure sales begin with a minimum bid that includes the loan balance, any accrued interest, plus attorney’s fees and any costs association with the foreclosure process. In order to bid at a foreclosure auction, you must have a cashier’s check in your hand for the full amount of your bid. If you are the successful bidder, you receive the property in “as is” condition, which may include someone still living in the property. There may also be other liens against the property.

Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property “reverts” to the bank. It becomes an REO, or “real estate owned” property.

REO Properties – For Sale – The bank now owns the property and the mortgage loan no longer exists. The bank will handle the eviction, if necessary, and may do some repairs. They will negotiate with the IRS for removal of tax liens and pay off any homeowner’s association dues. As a purchaser of an REO property, the buyer will receive a title insurance policy and the opportunity to investigate the property.

A bank owned property might not be a great bargain. Do your homework before making an offer. Make sure that the price you are offering to pay is comparable to other homes in the neighborhood. Consider the costs of renovation, including time to complete them. Don’t get caught up in a ‘bidding war’ and pay over market value.

REO Properties – How Banks Handle Them – Each bank/lender works a little differently, but they all have similar goals. They want to get the best price possible and have no interest in “dumping” real estate cheaply. Generally, banks have an entire department set up to manage their REO inventory.

Once you make an offer to purchase, banks generally present a “counter-offer.” It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer.  Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies.

REO Properties – Condition of the Property – Banks always want to sell a property in “as is” condition. Most will provide a Section 1 pest certification, but not unless you include it in your offer and negotiate the point. They will allow you to get all the inspections you want (at your expense), but they may not agree to do any repairs.  Your offer should include an inspection contingency period that allows you to terminate the sale if the inspections reveal unanticipated damages that the bank will not correct.

Even though you agreed to “as is,” always give the bank another opportunity to make repairs or give you a credit after you’ve completed your inspections. Sometimes they’ll re-negotiate to save the transaction instead of putting the property back on the market, but don’t take it for granted.

Most banks will not provide financing on their REOs but it doesn’t hurt to ask. Especially if the property has extensive damage and you are purchasing it “as is.”

REO Properties – Making an Offer – Before making an offer, have your agent ask the following questions to the listing agent:

• Are there any inspection reports?
• What work has the bank agreed to?
• Is there a special “as is” form?
• How long does it take the bank to accept an offer?
• How does your agent deliver the offer?

Since there is no face-to-face presentation to the bank, provide the listing agent with a pre-qualification or better yet, a pre-approval letter and buyer biography. Make your offer easy to accept.  Remember that REO‘s sell at pretty close to full market value.

If you have any additional questions, always ask The Lawhead Team, Because Two Lawheads Are Better Than One!