Foreclosure

Looking for a deal buying a foreclosure? Learn the basics here.

Are there any foreclosures I can buy for cheap? It’s one of the questions people ask me the most. As with most things, every type of foreclosure sale has a catch. Before even answering it, we’ll need to define what a foreclosure is and to do that we’ll need to explain the timeline.

First, there’s a couple of different types of properties that are commonly referred to as a foreclosure sales:

1. Pre-Foreclosure or Notice of Default - A person who hasn’t paid their mortgage in awhile. For whatever reason, the owner of the home can’t or hasn’t paid the mortgage in awhile. About 3 months after not paying the mortgage, the bank that owns the note will file a Notice of Default or a formal notice that states the bank is beginning the foreclosure process.

2. Short Sale - Most of the time, owners who can’t afford to pay the mortgage are also short sale candidates.  This just means that even if they sold the property, the money left over would not be enough to re-pay the bank what they borrowed, so they’re “short”. Many refer to these sales as short-pays. Not all short sales are pre-foreclosures and not all pre-foreclosures will be short sales. For example, an owner who loses his job and is unable to pay his monthly mortgage might still have money left over if he sells his or her home. The majority of the homes classified as an NOD or Short Sale will be either put on the open market or will eventually be auctioned off. The catch with short sales is that they often take months and months to complete, if they close at all. To keep an eye on short sales, please contact your local real estate agent.

3. Auction - If the owner of the property fails to pay the mortgage long enough, the bank will end up trying to auction the property off to the highest bidder. This is where most buyers who purchase properties in foreclosure get the deals. So why doesn’t everyone do it? There’s 3 catches. First, if the auction is a standard Trustee Sale, the property must be purchased with all cash. There’s no option to take a loan to purchase the property. The minute the auction is over, bidders hand over cashier’s checks for the full amount, and the property or possibly the note is deeded to the bidder. The second catch is that the bidder must have done research into the chain of title of the property, meaning which loans take precedent over the others. If this is done improperly or there’s a hidden lien, the bidder can risk buying a worthless note rather than buying the property. Third, there’s no opportunity to actually view the property unless it was listed on the market previously. That means bidders are buying without knowing the condition, floor plan, and amenities of the property. I’ve heard stories of buyers buying one of these properties to discover missing kitchen cabinets, counters, bathroom cabinets, sinks, toilets, windows, doors, and even air conditioning units. The owner had removed them prior to vacating the property.

4. Real Estate Owned, Bank-Owned Property - If for some reason the property fails to sell at the Auction (also known as Trustee Sale), the bank who owned the note will take ownership of the property. These types of properties are called REOs or bank-owned properties.   Eventually the property will be brought into marketable condition and listed with a real estate agent.  This type of sale process takes the standard amount of time, can be financed, and can be easily found. These are probably the easiest foreclosure property to purchase but also the most competitive. Sometimes the properties can get bid up to market value, defeating the whole purpose if you were looking to buy at a discounted price.

It might sound like I’m trying to steer you away from purchasing a distressed property but I’ve actually helped many clients sell and buy through some of these types of transactions. Just be aware that with so much to think about, it’s vital to get the right advice when looking to buying a property, whether it’s a standard sale or one of the types of sales above. So make sure to speak to a local Realtor when you’re ready to buy.

Foreclosure

JUST SOLD! SHORT SALE! 325 E Duarte Rd #A, Arcadia

This home is located in the beautiful city of Arcadia and is part of the Award-Winning Arcadia Unified School District. The sale has been approved as a short sale by the bank and is ready for a new buyer. The home is a large detached townhouse with 3 bedrooms and 2.5 baths totalling 2,128 square feet of living space with an attached garage and small patio. It’s located within walking distance of markets, restaurants, and schools. It features a high ceiling entry, large kitchen, breakfast nook, plenty of light, a large master bedroom with a large walk-in closet, and a master bath with a spa tub. For more information please call Mark or visit my website.