FORECLOSURES- Myths vs. Reality

FORECLOSURES- Myths vs. Reality

There is a lot of information out there about buying foreclosed homes and some of it is true and a lot of it is just plain false. I will try to clear up some of the basic misconceptions about foreclosure properties:

First let's get familiar with the basics. Foreclosure property or bank owned property (now owned due to foreclosure) is referred to in the business as "Real Estate Owned" (a REO property). At this point the home is no longer in foreclosure as the bank (or lender) is the title holder.

Properties that are still in possession of a homeowner facing foreclosure is known as a "Pre-foreclosure property" or possibly a "Short-Sale". Many investors look for these distressed properties as many times they can be purchased for less than the current market value. Are there deals out there? Yes there are, but you need to be aware of what to expect when looking at REO properties:

1. WARRANTY - You will be buying a home "as-is" with no warranty.

2. CONDITION - Rarely is there any information available about the previous owner or the condition of the home.

3. UTILITIES - When looking at these homes the utilities will usually be disconnected as lenders do not want to pay high utility bills

4. FREEZE DAMAGE - If you purchase a home that went into foreclosure during the winter months, you need to have the home inspected as often times there can be freeze damage, even if the property was supposedly winterized.

5. FINANCING - In many cases your financing options will be limited as many of the properties will not qualify for many government programs (FHA, RD, VA, etc.) as there may be guidelines that the property must meet.

6. INSPECTION - When a property is appraised it may require you to put the utilities in your name (prior to ownership) so that a proper inspection may be done. Also the appraisal may require you to have the utilities on as well. If it is in the winter you may be required to pay to have the home de-winterized and then re-winterized for the inspection. Rarely will these costs be covered by the seller.

7. CASH BUYERS - If you are a cash buyer or you qualify for conventional financing, the inspections, etc may be optional. Consult your real estate professional for advice.

COMMON MYTHS

1. Homes can be purchased for pennies on the dollar

While there are often some very good deals, rarely will a lender sell a property at a significantly reduced price. Generally you can expect to save around 10-20% on average. An experienced REALTORÒ can help you find the best deals out there.

2. All REO properties are in poor condition

Although many REO properties are in need of repair, others are in like new condition. Again an experienced REALTORÒ can help you find the best properties out there.

3. You should contact the banks directly and ask about their REO inventory

Most larger lenders hire a licensed professional to market their property. Your best source for bank owned (REO) properties is a local REALTORÒ who specializes in REO properties

4. You can not get 100% financing on bank owned properties

If you (and the home) qualify for certain government programs you may be able to purchase a REO property with no money down. In fact there are several programs which are available for those who make less than $71,750 (for a family of 4 in Grand Traverse County) or $50,250 if you are single. Ask your REALTORÒ to recommend a lender who specializes in these programs.

5. I can't but a home with little or nothing down if the property needs repairs

There are certain government programs available for homes in need of repair (or that won't qualify for other programs). These special loan programs will require the property to be repaired after closing by a licensed professional. The amount of the repairs will be added to the loan amount so you will need to qualify for the purchase price PLUS the cost of the repairs. Consult your REALTORÒ for more information.

6. I have to pay to sign up on special websites to get list of foreclosure properties

No you do not. Your REALTORÒ can easily provide you with a list of bank owned properties. Ask to be set up on an automated email so you find out about the properties as they are entered in the MLS.

7. The market is still falling so I should wait to buy a home

Absolutely not. While the market may not have bottomed out, timing the market is a challenging task as each market is different and the statistics for each type of property (single family, vacant land, waterfront, etc.) is also different. Also interest rates are at record lows and as long as you are going to hold your property for several years you should be in a great equity position once the market does correct itself and it eventually will.

If you wait, interest rates may go up, financing option may change and prices may increase. Remember if you know we hit bottom and so will the rest of the world. When that happens sellers will be less flexible and the deals will evaporate fast.

Why not make an appointment to come in as discuss your needs one on one so we can help you find your next home or property.

We've only touched the tip of the iceberg here and I have lots of other helpful information available to you so please call me today.