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Article From BuyAndSell.HouseLogic.com
By: G. M. Filisko
Published: March 29, 2010
Get prequalified for a loan and set aside funds, and you’ll be ready to purchase a foreclosed home.
When lenders take over a home through foreclosure, they want to sell it as quickly as possible. Since lenders aren’t in the real estate business, they turn to real estate brokers for help marketing their properties. Buying a foreclosed home through the multiple listing service can be a bargain, but it can also be a problem-filled process. Here are five tips to help you buy smart.
1. Choose a foreclosure sale expert. Lenders rarely sell their own foreclosures directly to consumers. They list them with real estate brokers. You can work with a real estate agent who sells foreclosed homes for lenders, or have a buyer’s agent find foreclosure properties for you. To locate a foreclosure sales specialist, call local brokers and ask if they are the listing agent for any banks.
Either way, ask the real estate professional which lenders’ homes they’ve sold, how many buyers they’ve represented in a foreclosed property purchase, how many of those sales they closed last year, and who they legally represent.
If the agent represents the lender, don’t reveal anything to her that you don’t want the lender to know, like whether you’re willing to spend more than you offer for a house.
2. Be ready for complications. In some states, the former owner of a foreclosed home can challenge the foreclosure in court, even after you’ve closed the sale. Ask your agent to recommend a real estate attorney who has negotiated with lenders selling foreclosed homes and has defended legal challenges to foreclosures.
Have your attorney explain your state’s foreclosure process and your risks in purchasing a foreclosed home. Set aside as much as $5,000 to cover potential legal fees.
3. Work with your agent to set a price. Ask your real estate agent to show you closed sales of comparable homes, which you can use to set your price. Start with an amount well under market value because the lender may be in a hurry to get rid of the home.
4. Get your financing in order. Many mortgage market players, such as Fannie Mae, require buyers to submit financing preapproval letters with a purchase offer. They’ll also reject all contingencies. Since most foreclosed homes are vacant, closings can be quick. Make sure you have the cash you’ll need to close your purchase.
5. Expect an as-is sale. Most homeowners stopped maintaining their home long before they could no longer make mortgage payments. Be sure to have enough money left after the sale to make at least minor, and sometimes substantive, repairs.
Although lenders may do minor cosmetic repairs to make foreclosed homes more marketable, they won’t give you credits for repair costs (or make additional repairs) because they’ve already factored the property’s condition into their asking price.
Lenders will also require that you purchase the home “as is,” which means in its current condition. Protect yourself by ordering a home inspection to uncover the true condition of the property, getting a pest inspection, and purchasing a home warranty.
Be sure you also do all the environmental testing that’s common to your region to find hazards such as radon, mold, lead-based paint, or underground storage tanks.
More from HouseLogic
What you need to know about the homebuyer tax credit (http://www.houselogic.com/articles/homebuyer-tax-credit-what-you-need-know/)
How to claim your homebuyer tax credit (http://www.houselogic.com/articles/claim-your-homebuyer-tax-credits/)
Other web resources
How to buy a foreclosure from Fannie Mae (http://www.fanniemae.com/homepath/homebuyers/buying_fanniemaeowned.jhtml)
What to consider when buying a foreclosure as your first home (http://www.nolo.com/legal-encyclopedia/article-29589.html)
G.M. Filisko is an attorney and award-winning writer who purchased a foreclosed condominium and found herself in the middle of a months-long dispute between the former homeowner and the bank over whether the foreclosure was conducted properly. Six months after paying the full purchase price, she was finally able to enter the property. A frequent contributor to many national publications including Bankrate.com, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.
The data from February of 2009 to February of 2010 shows the median home price in the North County San Diego area, per square foot, rose 11.5% for single family homes and 20.4% for condos. The bulk of the sales in our market occured the “Spring Market” which is April through September. Since September, we have not seen enough data to support an increase in prices.
We are about to hit the Spring Market again, and it will be something to watch. With the Federal government changing the guidelines for FHA loans, which handle about 40% of our loans, they will not be propping up real estate loans. Tax credits for homebuyers ($8,000 for first time buers, and $6,500 for return buyers) will disappear if you are not in escrow by the 30th of April. The tax credits will probably play a small part in boosting the Spring Market.
With all these variables, it will be intersting to see what the market will do this year…