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Foreclosure Buyers: Sales & Marketing: REALTOR� Magazine

Foreclosure Buyers: Sales & Marketing: REALTOR� Magazine.


5 Tips for Buying a Foreclosure

Article From

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 (

How to claim your homebuyer tax credit (

 Other web resources

How to buy a foreclosure from Fannie Mae (

What to consider when buying a foreclosure as your first home (

 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, REALTOR® Magazine, and the American Bar Association Journal, she specializes in real estate, business, personal finance, and legal topics.

Home Prices Up Per Square Foot

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…

A Mixed Bag for the SD Housing Market

Since we are heading into the third month of the year, I thought we should discuss the “Elusive Shadow Inventory” that everybody has been talking about for at least a year.

According to Schiller data, home builders are re-openning or start new projects across the county.  There were eight new projects started in San Diego last month.  The county showed home prices that were 2.7% higher at the end of 2009 than they were in 2008.  That all being said there are not a lot of homes for sale right now.  The overall number of homes sold dropped 28% !  Where’s the inventory??  With 1/3 of San Diego homeowners currently underwater in their mortgages, that’s over 200,000 properties that should be, but are not, on the market!

According to the MLS , there are currently 9,243 homes actively for sale in San Diego County.  But there are also 7,260 homeowners who have recieved at least one default notice, and another 10,221 homes headed for the auction block.  Of these 17,500 homes, none have gone back to the bank as of yet!

What does that mean to San Diego’s housing market? This market could go anywhere in the next quarter.  It’s hard to know for certain what is going to happen.  With such a large inventory that is unknown, it is anybody’s guess as to what we’re heading for!  I think it will depend on how many homeowners will get their loans modified, or just end up with a short sale or foreclosure.  I feel that with so many people having no equity in their homes, these people will lean towards short sale/foreclosure versus modifying a loan and hanging on to something that will take years to get back in the black. This will result in a large number of houses on the market.

As always, I welcome your thoughts on this…

FDIC and OneWest Bank Loan Modifications

I saw this clip the other day on the internet on how the FDIC is handling the losses on one bank…  According to this clip, the FDIC bailed out IndyMac and shut its doors back in July of 2008.  In March of 2009, the FDIC sold all the bad loans to OneWest Bank for 70% of their value and HELOC’s (helocs are lines of credit) at 50% of their value.

When watching this video, my blood begin to boil! This is the same public rip-off that we have been watching for years.  Whether we have a republican/democrat in office, it’s all the same old story! OneWest Bank is owned by private investors with ties to the US treasury department.  This means they did not have to sign up for the loan modification program that Obama passed a few months back — that program helps consumers in danger of foreclosure by modifying the terms of their loan.  OneWest Bank has no incentive to help homeowners, and in fact, it has a lot of incentive to foreclose on the homeowners. 

Here is a link to the article I am referencing:  Please watch the video, read the blogs, and tell me what you think.  I just don’t understand how we can get the housing market back on track if we don’t get the government out of the housing market.

Carlsbad Aviara Oaks Elementary Fire

On my way to show some homes yesterday in Carlsbad, I heard about this fire.  I was very suprised to learn this was arson.  At 1:30am on February 1st, somebody started a fire in the teacher’s lounge.  The school managed to resume all classes that day, but what a heartbreak.  As a local of North County this really upsets me.  Who would want to set fire to a elementary school? 

We are currently in a recession and our schools are losing funds everyday.  These teachers work hard and try to educate our kids, so why would you burn down their teacher’s lounge.  I think people need to re-think their actions. 

I just want to say thank you to the Carlsbad Firefighters and their quick response.  They managed to keep the fire contained to the one building and school was not canceled. 

I have a hard time with acts of vandalizm.  I hope they catch these people!

$6500 Tax Credit for Repeat Buyers

If you’ve been waiting to buy a home until you know you can get the Repeat Buyer Tax Credit, Washington DC has finally put together the documentation needed for  your 2009 taxes.  If you are not sure how the credit works, or whether you qualify, here is brief over view…

If you’ve been living in your primary residence for any five consecutive years over the last eight years, you should quyalify to recieve the credit.  However, there are limits on income and the purchase price of the home.  The maximum amout a home can cost is $800,000.  You are not required to sell your current home, but the home you are buying to get the credit must be your new primary residence.  Income limits are as follows: your modified gross income must be $125,000 or less if you are single, $225,000 or less if you are married and filing jointly.  If you exceed these limits, the allowable credit amount begins to scale down in increments, and the maximum you can make to get any credit if you’re single is $145,000, and $245,000 if you’re married filing jointly.

What documentation you will need to get the credit in your 2009 – 2010 tax returns? The list includes:

  1. A copy of the signed HUD-1 settlement sheet, including contract sale price and date of closing, this is used to document when the home was purchased.
  2. Evidence of long term ownership and occupancy of your current house to meet the five year requirement.  This can be proven by showing reciepts of property taxes or utility bills with the purchaser’s name and address on them.
  3. This tax credit does not have to be repaid unless you sell your home within three years, the home is foreclosed on, or the property changes from a primary residence to a rental or business property.
  4. The IRS has published the 5045 Form needed to file with your property tax.  You can get this form on the IRS website,  Note: This form may not be on Turbo tax yet.

If you are thinking about upgrading your home, or moving to another area, you better hurry to get this credit.  You have to be in contract by April 30th and the deal has to close by the end of June.