Foreclosures 101-What To Expect
Foreclosures are here to stay for some time. A lot of those potential short sales will soon be foreclosures. Adjustable mortgages, lost jobs, divorce, deaths and other foreclosures and short sales pulling down market values are causing people to lose their homes. For the buyers, this can be a great time to buy.
Foreclosures are bank owned properties, that were acquired through nonpayment of lenders, tax liens and HOA and Condo associations dues. In most cases, a combination of all of these may be the cause. In most cases, these bank foreclosures are purchased for considerably less than the homes surrounding them. Foreclosures can be reduced as much as 33% below the normal market value for non-foreclosures and short sales. In most cases, the prices are already reduced when you see these homes on the internet or have received info from you realtor. Offering 50% of the asking price is a public misconception that you buyers need to know.
The banks are willing to negotiate on the price and closing costs somewhat, but they will dictate the terms of the contract and who will be the closing agent. Be prepared to make an offer, have the bank come back to you with an approval by sending their own counter offer and addendums completely re-done with your offer price and closing cost amount with the property address and your names. Most likely, the rest of that counter will have a closing date of 30 days after the seller signs the counter, a certain number of days like 5, 10 or even no days for an inspection. Most likely the “seller” will not address or pay for any repairs, termites, mold or structural damages. Your lender and FHA/VA lender will carefully look at this report and determine whether the home appraises for your loan amount and will evaluate whether the home needs too much repairs to qualify you for the loan. Be prepared to have to make a decision whether to accept their counter and addendums or just not get the home. Very few, bank owned, home “sellers” will allow you to negotiate anything once they send their own documents. If you need an extension on the closing date and/or financing, you will most likely have a clause in their counter offer, of a per diem and an additional, non-refundable deposit.
The “sellers” want to use their own attorneys and title companies to be the closing agents. You can have your own escrow agent hold your deposit until the closing agent requests it to be transferred, but you will not be represented by anyone unless you retain your own attorney to perform an independent title search. I really suggest doing this. If you don’t find out until after closing, that there are problems that are clouding the title, this would prevent you from easily transferring title when you decide to sell. The ownership of the property needs to be ascertained as to whether the “seller” really owns it or if the proper person actually was the one to sign all of the documents.
The “sellers” will have to clean up most evident title issues in order to provide you with a clear title at closing. These can include: tax liens, mechanics liens, HOA and Condo Association liens at their own expense.
Does all of this sound scary? The uncertainty of this real estate transaction actually closing, the title work performed correctly, the quality of the title insurance policy, the inspection and appraisal results can be very stressful. Some buyers just do not think it is worth the risk, but if you find a good realtor that is experienced and skillful in handling foreclosures and also retain an attorney to perform your own title search, it could be a great investment for your future. The savings on a foreclosure will most likely pay off with reduced risk if done correctly!