Should I Buy a Foreclosure?

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With all of the news of the slowing housing market and the condition of the economy it seems that everyone is waiting to find the best deal before purchasing. And why wouldn't you want to get the best deal? I get calls from people every week wanting to buy a foreclosure. How many foreclosures are available in the area and should you buy a foreclosure?

A foreclosure happens when someone is no longer able to pay their mortgage payments on their home. A foreclosure is the last step that the bank takes. After a person is past due 90 days the bank issues a Notice of Default. The Notice of Default is public information and is filed at the County Recorder's Office. The Notice of Default tells the homeowner that they need to catch the mortgage up, sell the home and pay off the mortgage, or risk losing the home to the bank.

Pre-Foreclosure

After the Notice of Default has been filed the property is put up for auction. Depending on the state where the home is located will tell you how long before this happens. Investors looking for a good deal usually target homeowners prior to the auction offering the homeowner enough to pay their mortgage off and walk away. This can be a good deal for the homeowner because often they don't have enough time to sell the home on the market before the auction. This can also help salvage the homeowners credit.

Should the homeowner not catch up the mortgage payments or sell the home, the next step is for the bank to take the property to auction, depending on the state depends on how this process happens. At the auction, usually held on the steps of the courthouse, anyone can come and bid on the home. Auctions can be a source for a great deal on a home, but not everyone has the ability to buy at an auction because you must pay cash for the home.

Foreclosure

This is the step that most people are familiar with. If the home is not purchased at the auction and the homeowner is still unable to catch the mortgage payments up, then the bank takes ownership of the property. At this point the bank will list the home for sale with a real estate brokerage. Generally, when the bank lists the home for sale they list it at or near market value.

Benefits of Buying a Foreclosure

The reason people want to purchase foreclosures is to get that good deal they've been searching for. With foreclosures, you often get the home for below market value and have instant equity in the home. Investors love buying foreclosures that they can go in and quickly fix up and sell for a quick profit. This is known as 'flipping' a home. There are many television shows that get people excited about flipping homes. I'll save the process of doing this for another blog post.

Negatives of Buying a Foreclosure

Buying foreclosures can be a risky investment. Often times foreclosures are in need of some much needed repairs that the previous owners neglected to perform. And when you buy a foreclosure, especially at an auction, you don't have the time to perform inspections before purchasing. Before jumping into buying a foreclosure, do your homework. Talk to real estate professionals about the market prices of homes similar to the one being foreclosed on and give yourself enough cushion to be able to perform the repairs and still have your total invested less than the market value.

Purchasing a home when the bank gets involved can be very stressful and require a lot of extra paperwork. It is best to have a knowledgeable real estate agent assist you through this process. For some people buying a foreclosure is a great deal, for others it may be too much of a headache to get involved in.

How Many Foreclosures Are There?

After watching the nightly news, one might be led to believe that there is an overabundance of foreclosures on the market. The reality is that every local market varies. Here in the Logan, Utah area we currently have about 13 bank owned homes, and less than 20 homes in pre-foreclosure. This means that competition is high which will increase the odds of these homes selling near market value. In other markets there are a larger number of homes facing foreclosure or are already bank owned.

For more information about buying a foreclosure, give me a call.

Robert W. Bowen is a professional REALTOR®with RE/MAX Excel in Logan, UT. You can contact him with questions through his website, www.RobertWBowen.com, or calling (435) 770-1352.

Disclaimer: Information in the post is deemed reliable, but cannot be guaranteed as many sources may have been used and may or may not have been reliable at the time of sourcing. The information in this post is an opinion of the author, may be time sensitive, and is subject to change without notice.