Buying a Foreclosure Property - What You NEED to Know!

Below you will find a summary of important information to know and consider before beginning the process of searching for foreclosure listings (bank owned, repo's, Homepath, Homesteps, and HUD properties).

Definition of foreclosure according to wikipedia is:

The foreclosure process as applied to residential mortgage loans is a bank or other secured creditor selling or repossessing a parcel of real property (immovable property) after the owner has failed to comply with an agreement between the lender and borrower called a "mortgage" or "deed of trust". Commonly, the violation of the mortgage is a default in payment of a promissory note, secured by a lien on the property. When the process is complete, the lender can sell the property and keep the proceeds to pay off its mortgage and any legal costs, and it is typically said that "the lender has foreclosed its mortgage or lien". If the promissory note was made with a recourse clause then if the sale does not bring enough to pay the existing balance of principal and fees the mortgagee can file a claim for a deficiency judgement.

You may hear a Foreclosure sale called an REO or Repo...these are all synonyms for a house that has been foreclosed upon and is now bank owned.

 Definition of HUD property

When someone with an FHA Insured mortgage defaults on the loan, the lender forecloses on the home; FHA pays the lender what is owed; and then HUD takes ownership of the home. In Michigan and other states HUD turns over the property to Michaelson, Connor and Boul Inc. (MCB) a Marketing and Management contractor for HUD.  MCB maintains and sells these properties in accordance with HUD guidelines.

A great resource for answers to frequently asked questions about searching for, viewing, and the buying process of HUD homes is available at the FAQ page on mcbreo.com.  Click here to view it!

1.  The first step in buying any foreclosure listing or HUD home is to determine if you have the cash available or if you can qualify for some type of financing.  When submitting an offer to purchase a foreclosed property most banks or government agencies will not even consider your offer unless it is accompanied by a letter of pre-approval from a lender or a proof of funds letter showing the availability of your cash.  This step cannot be skipped and I cannot stress the importance of getting this in order before searching for available homes.

2.  Find a local real estate agent familiar with the area you are looking in.  Real estate is local and an out of town agent may not be fully aware of the intricacies of selling real estate in that specific area or know about certain things happening locally that may affect your decision to purchase in that area or buy that specific home.  I am an Accredited Buyers Agent (ABR) fully qualified to represent buyers in the Gladwin, Michigan area and the surrounding communities of Beaverton, Harrison, Clare and Hope.  I have extensive knowledge of the local real estate market and am very experienced in the sale of foreclosure listings.  60% of my business so far this year has come from the sale of foreclosed listings or HUD homes.

3.  Buying a Foreclosure Listing or HUD property is not like buying from an individual.  Almost all foreclosure listings or HUD properties are sold as-is, where-is, meaning that you will be buying the property in its present condition and no repairs will be made by the owner.  Typically the house is priced according to its fair market value taking into account its condition.  This does not mean that you should not do an inspection!  As a matter of fact that is one of the most important steps...this will ensure you are fully aware of the condition of the home you are going to purchase and determine if you want to or can repair the home.

There will be additional paperwork involved in making an offer to purchase a bank owned/foreclosure listing.  Banks typically have an addendum to the purchase agreement, as-is statement, and other documents that must be reviewed and signed and either sent along with the offer to purchase or signed after acceptance of your offer.  The complexity and length of these documents is another reason why it is so important to choose an agent familiar with selling foreclosure listings.  Your agent will guide you through the process, answering your questions along the way.

Banks work on their time line not yours and do only what is in their best interest.  For the bank selling the property it is all about the bottom line.  They will decide if your offer makes financial sense based on the local market, the value of the property and your method of payment.  They will respond when they can (and do try to do so in a timely manner) but they do not have to respond at all if they do not like the offer.  Banks can review multiple offers to purchase a property at one time and in this case usually require the highest and best offer from all parties who are interested in purchasing.

Remember foreclosure listings are vacant and immediate occupancy is given which can speed up the process of moving in!  Check my foreclosure blog weekly, or even subscribe to it, at www.activerain.com/blogs/sonyaann for the new foreclosure listings in the Gladwin, Beaverton, Clare and Harrison, Michigan area.