You can’t always judge a home buying opportunity by its cover.
Distressed properties are those with owners whose mortgages are higher than the value of the house, commonly referred to as “short sales” or homes that have actually been foreclosed upon. While these properties may not always be pretty, they could be just right for the right buyer.
While there are buying opportunities in foreclosures and short sales, the process can be very complex and time consuming. A buyer could wait months for the bank to render a decision on an offer to purchase.
Because distressed property owners are often burdened with debt, many of these homes are abandoned or in disrepair. The key to buying a distressed property is working with professionals – beginning with a REALTOR® who understands where to find distressed properties and how to navigate the purchase.
You’ll also need a good home inspector and perhaps a real estate lawyer to work through the legal tangle that can occur when owners have walked away from their property or have sunk into unbearable debt. I recommend purchasing an “Owners Title Insurance” policy particularly in these situations.
The foreclosure process includes different stages – pre-foreclosure, auctions and bank-owned (or real estate-owned – REO).
Pre-foreclosures are homes where a Notice of Default is publicly filed and the property owners are in default on their mortgage. Since the bank or mortgage company does not really want the property back they will try and negotiate with the owners to either “catch-up” with their back payments or sell the property. This period differs with sellers and lending institutions but my experience says that it is often a 3 to 9 month time period.
Foreclosure auctions are known as the second state of foreclosure. A sheriff or trustee sale notice is publicly filed and the foreclosing lender “hosts” an auction. The foreclosure sale begins with a minimum bid that includes the loan balance, any accrued interest, plus attorney’s fees and any costs associated with the foreclosure process. Successful bidders receive the property in “as is” condition, which may include someone still living in the property. There may also be liens against the property so again always buy owner’s title insurance.
REO properties are the result of unsuccessful auction sales. Since what is owed to the bank is almost always more than what the property is worth, very few foreclosure auctions result in a successful sale. Then the property reverts to the bank. In this stage, the bank will handle the eviction, if necessary, and may do some repairs. It will negotiate with the IRS for removal of tax liens and pay off any homeowner’s association dues. But since these properties are transferred with a sheriff’s deed rather than a warranty deed get owner’s title insurance.
At this point, REALTORS® who know the foreclosure process are crucial in not only identifying opportunities for buyers, but also in attending to all of the baggage that comes with such properties.
Do not attempt to take a run at this process alone! A number of REALTORS® today specialize in distressed sales and foreclosure properties. Those REALTORS® can help guide potential buyers through the process – from identifying the right property and negotiating the transaction to understanding just what it might take to get these properties to habitable condition.
When the unthinkable happens, selling a distressed home can help the owner alleviate an unfortunate financial situation. The community also benefits as the new owners assume responsibility for the home’s upkeep so that it does not become an eyesore in the neighborhood.
Bottom line; contact a REALTOR® with the Dayton Area Board of REALTORS® to assist you in your buying process.