So what exactly is a foreclosure? The foreclosure process allows lenders and other lien holders the ability to recover the amount on a defaulted loan by selling or taking ownership of the property that was used to secure the mortgage.
See Also: Short Sales vs Foreclosures
Court foreclosures begin when the lender files for foreclosure in court and records a notice of the pending lawsuit (Lis Pendens). The court filing includes the debt and default amount. The borrower and any junior lien holders are notified either in person or by publication. If the borrower does not respond to the court action, the court can rule against them and set the amount owed to the lender. The county clerk then directs the county sheriff to conduct a sale of the property to recover the amount owed.
An out-of-court foreclosure sale may occur if a clause in the trust deed permits the lender to sell the property if a borrower defaults. To start the foreclosure, the trustee records a notice of sale, and the sale occurs at least three months after the notice is recorded. Until 5:00 p.m. the day before the sale, the borrower or any junior lien holders may stop the foreclosure by paying the default amount, fees, and costs.
The foreclosure process can end one of four ways:
1. The borrower/owner pays off the default amount to reinstate the loan during a grace period known as pre-foreclosure.
2. The borrower/owner sells the property to a third party during pre-foreclosure, allowing the borrower/owner to pay off the loan and avoid having a foreclosure on his or her credit history.
3. A third party buys the property at a public auction at the end of the pre-foreclosure period.
4. The lender takes ownership of the property, usually with the intent to re-sell. The lender can take ownership through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the public auction.
The foreclosure process offers three bargain-buying opportunities:
1. Buying during pre-foreclosure (short sales)
2. Buying at public auction
3. Buying bank-owned properties (also know as REO properties)
This post will focus on the third stage: Buying bank-owned properties
4 Steps to Buying a Foreclosure
Step 1: Create a Plan
Many people begin the process of buying a foreclosure or short sale buy looking for the house. This will usually lead to heartache. Generally, you can get a pretty good deal on foreclosure properties. The problem is that every buyer knows this. These types of properties have A LOT of competition. When homes go fast like this, you need to be prepared.
When we meet our clients to prepare a plan, we want to make sure we have all of our bases covered. Yes we talk about what type of home you are looking for, but we also need to make sure your financing is lined up and ready to go. That way when we submit an offer to the seller (the bank) they know that we are serious and solid about buying.
See Also: Create your real estate game plan
STEP 2. Find a Property
Watch the video on how to find foreclosures for sale
When you start your search for foreclosures, it helps to get as specific as possible.
See also: Needs vs Wants
Our system allows you to search specifically for homes that are already bank owned or are in the short sale process. Of course you don’t have to choose this option but it helps to know how motivated they are (side note, if they are trying to sell in this market, you KNOW they are motivated!). You can narrow your search down by city, zip, school district, etc. You can even lock the map into place and only search for homes in the visible area. This is really helpful when you know that you want to be close to work, a park, or anything else!
Of course you also always have the ability to search by number of beds and baths.
Once you have the search you want, you can save that search by creating an account. The benefit here is the updated email that goes out daily. This way you can be the first to know about the new listing that meets all of your criteria! The email will also keep you aware of price drops, so when your perfect home falls in to your price range, you can be ready to move!
See also: Why register for an account?
STEP 3. Get Financing
You actually begin this process right away. You don’t want to begin your search and then find out you don’t qualify for that amount. Once you know your price range and have the pre-approval letter in hand, you can start making offers on properties. As I mentioned before, this pre-approval letter basically tells the world (or sellers at least) that you are a serious buyer and you are not just jerking them around.
See also: How do I buy this home?
STEP 4. Making an Offer
OK, so here is where it actually gets fun. When making an offer on a foreclosed home, speed is the name of the game. I have seen MANY buyers miss out on the perfect home because they waited too long to pull the trigger.
Earlier this spring, my sister bought a home back in Oregon. The home had been on the market 6 months with no offers. She drove by the home and called me over. We walked through the house and wrote an offer up that night. Sellers accepted the next day, and by the weekend (3 days later) they had 2 back up offers. One actually would have netted the sellers more money. That couple had looked at the home 5 times over the previous 3 weeks. By moving quickly, my sister got a good deal, and the other buyers missed out.
The offer will include a copy of your pre-approval letter, and a copy of your earnest money check. Here is where we play our hand. Many buyers HAVE to feel like they are getting a deal on a property. I completely understand that, but remember that there may be other buyers waiting in the wings to make an offer. Know the neighborhood stats before you start looking. That way you know when a home is listed at $90 a square foot and the mean is $115 you are getting a GREAT deal. Then you don’t have to push for $75 per square foot and possibly lose out. The offer that gets accepted is going to make you feel good and the seller feel good.
Keller Williams Arizona Realty