Pre-Foreclosure Homes

If you are looking for an affordable home, you may come across “pre-foreclosure” homes and wonder if they are worth looking into. When you browse through real estate listings, you will see that there are plenty of pre-foreclosure listings. But is buying one something you should do?

Pre-foreclosure is the first stage in the foreclosure process. It begins when a Notice of Default (non-judicial states) or Lis Pendens (judicial states) has been filed against the homeowner. Foreclosing on a property can be a lengthy process. Homeowners are first served a notice of default notifying them of the bank’s intentions to begin foreclosure proceedings. They still have the opportunity to make it right by catching up on their payments.

Many times, the home is listed on Zillow (or other real estate sites) and the owner is not even aware of it. There will be a Google street-view image of the home, the address, details of the property, and occasionally inaccurate information. The homeowner is not allowed to opt-out of having their home publicly listed, which can cause some embarrassment for them.

Pre-foreclosures are not a done deal. While they appear to be a fantastic deal on paper, nine times out of ten there really isn’t a deal to be had. In many cases, borrowers fall a month or two on their mortgage payments and then quickly catch up. Under pressure from the government, lenders are more willing to work with delinquent borrowers than they were just a few years ago, which explains why foreclosures are at all-time low in many parts of the country. In general, pre-foreclosures fall into two categories. Homes with 90-day late notices are usually resolved before foreclosure and hardly worth a buyer’s time. Pre-foreclosures with an auction date set are much more likely to sell before the foreclosure becomes official, but even then a sale is not guaranteed.

The pre-foreclosed home is not actively listed for sale. The owner has not taken steps to list the home for sale. The transaction is dependent upon the buyer identifying a homeowner in a mortgage default list and persuading him to sell. Many homeowners will be pursuing options to cure the default and will not negotiate. As such, it is better for most buyers to assume that a pre-foreclosure home is not for sale and seek viable alternatives with help from his real estate agent.

The Bottom Line: Buying a pre-foreclosure home is an opportunity to less than what the market would list. The competition is less than if you would have bought a foreclosed home at auction. Before you look for a pre-foreclosure home, it’s important to research the distressed property laws in your state. There’s a reason that most buyers of pre-foreclosure homes are seasoned investors, not first-time homebuyers. The process is not easy to navigate. It helps to have a lot of cash on hand and plenty of negotiating savvy.

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Short Sale

If you are facing foreclosure and can no longer afford your home, you may qualify for a Short Sale—even if you don’t think you can or haven’t been able to sell your home.

What is a short sale?

A short sale, also known as a pre-foreclosure sale, is when you sell your home for less than the balance remaining on your mortgage. If your mortgage company agrees to a short sale, you can sell your home and pay off all or a portion of your mortgage balance with the money you sell it. Depending on your situation, you may be required to make a financial contribution to receive a short sale.

  • You are ineligible to refinance or modify your mortgage
  • You are facing a long-term hardship
  • You are behind on your mortgage payments
  • You owe more on your home than it’s worth
  • You have not been able to sell your home at a price that covers what you still owe on your mortgage
  • You can no longer afford your home and are ready or need to leave

When is a short sale a benefit?

  • Eliminate or reduce your mortgage debt
  • Avoid the negative impact of a foreclosure
  • Start repairing your credit sooner than if you went through a foreclosure
  • May be able to get a Fannie Mae mortgage to purchase a home sooner (in as little as 2 years) than if you went through foreclosure (up to 7 years)

What is the process for a short sale?

If you qualify for this option, the process is similar to a normal real estate sales transaction. You will work with a real estate agent to market and sell your home. However, your mortgage company will also be working with you and your real estate agent every step of the way to:

  • set the sale price based on the market value at the time
  • collect financial information and negotiate with other lien holders
  • review acceptable offers,
  • agree to the terms of the sale once a buyer is in place

A short sale may take up to 120 days, but this could be shorter or longer depending upon your specific situation. If you are unable to sell your home, you may be able to transfer the ownership of your property to the owner of your mortgage.

The Bottom Line: Your mortgage company wants to help you avoid foreclosure and, in most cases, will be willing to work with you. The biggest mistake you can make is to wait any longer to take action. Contact your mortgage company today to determine if you are eligible for a Short Sale.

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Buying a Foreclosed Home

Buying a foreclosed home has its benefits; most importantly because it’s often cheaper than buying a home the conventional way. In a foreclosure, you’re buying from the previous owner’s mortgage lender because the owner has defaulted on their loan. The reason a foreclosure is more affordable is that while a homeowner wants to make as much profit as possible, the bank mainly wants to recoup the remainder of the mortgage and any holding costs. Buyers need to be careful: Purchasing a home that is in foreclosure can lead to big problems.

Banks are in the business of lending money, not maintaining homes. That means when a bank owns a home, it will not make any repairs to the property, regardless of any damage.

Still, as the buyer, get an inspection, even though you shouldn’t expect to receive any money from the bank to make repairs or any repairs to be made for you. In some cases, you can use the inspection report as a way to negotiate a lower sales price, but only if there aren’t multiple offers willing to pay more for the property.

Make sure that you get the home inspection from a licensed inspector before closing on the property. One way to do this is to make the offer to purchase contingent on the home inspection. The home inspector will reveal to you items in need of repair, such as a leaky roof as well as items that are not up to safety code, like a water heater that’s not strapped up. Then, you can decide whether or not you are willing to purchase the property based on the new knowledge that the inspection report showed you.

Not every bank-owned property needs repairs, but many do. So, take into account the cost of all the necessary repairs when buying a foreclosure. Some may be major, such as roof repair, while some are likely to be purely aesthetic like painting the walls or pulling out carpet.

Can you do the work yourself? How much time will it take you and what is the cost of materials? If you’ve never done repairs on a home before, get a professional estimate, preferably a free one from a local contractor or a home improvement store.

The Bottom Line: Buying a foreclosed home can turn out to be the best deal, but you should be able to handle the risk. Make sure you get your home inspected and figure out how much other homes in the area are going. That way you don’t end up paying more than you should.

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Buying a Foreclosed Home

Buyers and Sellers

Buying a foreclosed home – bank-owned – comes with risk but can be a great deal. Foreclosed homes are inundating the real estate market and can be a great opportunity.

Get an Inspection. Foreclosed homes are sold “as-is” and are owned by banks that don’t and won’t make repairs to the property. It must be understood that in most cases these homes have been poorly maintained as the owner often vacates the home because they could not make their mortgage payments. The maintenance and condition can be an issue because of the circumstances under which the owner had to move out and the amount of time the house has been unoccupied. Not every bank-owned property needs repairs – but many do. While you can’t get the bank to fix the problems the inspector finds, in many cases, you can use it to negotiate a lower sales price. An inspection helps you to know exactly what you are getting into.

Get comparative market analysis. Never assume that a foreclosed home is listed below market value. There is a common misconception that buyers will get a good deal on foreclosed properties. The bank’s goal is to recoup as much of their money as they can and will put the home on the market for more than it is worth. A good Realtor can help you know what prices of other homes in the neighborhood are selling. Knowing this information coupled with the inspection results, you will be better able to determine what price you will pay for the home.

The process to close on a foreclosure can take more time. The offer you prepare to make will go to a bank, not to an individual seller. There are many layers of approval that the offer must go through. Foreclosed homes more times than not run into title issues, such as uncovered liens on the property that can further delay and complicate the situation. Using a Realtor that is skilled in foreclosures is highly recommended.

The Bottom Line: Learn as much as you can about the foreclosed property as possible. Know your own financial situation because often buyers underestimate how much money they will spend to fix the property to make it habitable. A home in need of repairs is a big project to take on. Assess how you will pay for the property. If you don’t intend to pay cash, you should have a preapproval letter from a bank or other lender. Use a Realtor and consult with a real estate attorney who understands foreclosure law in your state.

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Buying a Foreclosed Home

realtors

A home that has been foreclosed means that the owner is no longer legally bound to the property and it will be placed in a foreclosure auction. This will be public record and once the home was transferred from a homeowner to a bank or lender, it will be available at a reduced price in the housing market.

Purchasing a foreclosed home can be high risk but can also an incredible investment. The first thing to do is to choose the best Realtor that specializes in foreclosed homes. The home you have found may be listed at an affordable price, but often buyers underestimate the money they will spend to make the home livable. Usually, these homes are in need of repair and the Realtor will help determine if it is worth the investment.

Most importantly, the buyer must do a physical inspection because buying a foreclosed home is buying “as is”.  The bank that now owns the home does not have to disclose and usually doesn’t know any of the previous history, or any problems that have taken place. Missing appliances, hidden holes in floors & walls, vandalism, broken piping and stolen fixtures are just a few of the details easily missed. Trees, vines, and bushes can uproot foundations and grow into the piping. The longer the home has been sitting – which can be quite a long time frame – the more damage is found.

The Bottom Line: Buying a foreclosed home might end up costing more in repairs than planned and may end up being a bad financial move. The home might be sold at a great price, but in the end, the home could be a money pit. Getting the help of a skilled Realtor is paramount in this situation because what you see and don’t see in the home is what you get. It is essential that the buyer knows what they are getting into and a good Realtor will be able to highlight all the pros and the cons.

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Short Sale, Foreclosure and the Title to a Property

The most basic part of buying a new home is dealing with potential problems that may have been created by its previous owners. Short sales, foreclosures, bankruptcies and financial situations have added another element to the entire closing process that makes title insurance essential.  The title to a house is the document that proves that a person owns it.  Without that proof, the house can’t be sold or bought.

Title First Agency experts oversee and perform thousands of closings each year nationwide and ensure that all of the details of the title transfer and closing are in proper order. Unfortunately, at this time there are plenty of situations that could make problems with a title and complicate the process of buying the affected houses.  No matter why the house is being sold, its title problems must be cleaned up so they are not inherited by the buyer.

Short Sale: A short sale is when the lender agrees to let you sell your home for less than the outstanding mortgage debt. The proceeds from the sale pay off a portion of the mortgage balance and the lender releases the lien on the property. A title from a short sale is not always free and clear. A good Realtor will make sure to get a preliminary title search performed to determine the extent of outstanding legal obligations. If a home is bought without a clear title, the buyer could be responsible for the mechanic’s lien, which is a legal claim placed on a home to settle unpaid or partially paid contractor work,  any unsettled contractor liens, property-tax liens, IRS liens, homeowners’ association special assessment liens or even a second mortgage loan.

Foreclosure: Homeowners that can’t afford their home may decide to relinquish ownership and give the house to the bank that holds the mortgage. Mortgage foreclosures can cause a lot of issues with the chain of title. Sometimes, even though the owner loses their home, they may not actually lose the title to the property.  The property may have plenty of repair problems since financially distressed owners often let their properties fall into disrepair. From leaky basements, unpaid taxes,  to bills from homeowners’ associations to quarreling lenders – it can take some time to sort out who is owed what, how they will be paid, and when the title will finally be cleared. All buyers of foreclosed property need to protect themselves by making sure the title search shows that any previous mortgage was satisfied, canceled or otherwise released to avoid any future title problem.

The Bottom Line: There are dozens of potential barricades to clear title.  Buying or selling a home has become a complex transaction and you need a trusted title search company to guide you through the process. The experts at Title First oversee and perform thousands of closings each year. When using Title First, you can sign confidently on the dotted line knowing that all details of your title transfer and closing are in proper order. We are here to answer any questions you may have about buying or selling a home, and our team will guide you through the entire process.

 

 

 

 

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