Foreclosures

Many home buyers associate buying a foreclosure with getting a deal. This can be true, but there are potential pitfalls. Foreclosure is a process with four distinct phases. The terms and length of each phase vary by state and sometimes by lender. The pros and cons of buying a home involved in foreclosure vary with the phase of foreclosure the property is in when purchased.

 

Phase One: Motivated Seller (missed mortgage payments)

Buyer Advantages:

  • Financing available for purchase
  • Due diligence inspections included in process
  • Seller obligated to provide full disclosure

Buyer Challenges:

  • Seller may have little, if any, ability to negotiate price depending on their outstanding obligations on the home

 

Phase Two: Short Sale: Pre-foreclosure Notice of Default

Buyer Advantages:

  • Motivated seller
  • Financing available for purchase
  • Due diligence inspections included in process
  • Seller obligated to provide full disclosure

Buyer Challenges:

  • Lender must approve purchase price and terms of sale including any closing cost credits
  • Purchase may take between 45 - 90 days to close

 

Phase Three: Foreclosure Auction

Buyer Advantages:

  • Property sold for outstanding mortgage balance owed to foreclosing mortgage holder and therefore the price for the property may be very low
  • No commissions or attorney's fees paid

Buyer Challenges:

  • Auction price must be paid in cash; generally no mortgage financing is accepted
  • As-is sale; no inspections and no disclosures given to buyer
  • Liens, back taxes and other obligations may be acquired by buyer
  • Buyer must research title prior to auction

 

Phase Four:  Bank Owned Property/REO (Real Estate Owned By Lender)

Buyer Advantages:

  • Title will be clear and buyer will not assume any liens, mortgage or back taxes of prior owners
  • Mortgage financing available
  • Inspections may be conducted
  • House is vacant
  • Property listed on Multiple Listing Service (MLS); bank will pay real estate agent commissions
  • REO sales close within normal escrow timeframe

Buyer Challenges:

  • As-is sale; no repairs
  • Banks usually require additional paperwork
  • Banks cannot provide disclosures on property history or condition

 

Many ERA® agents and brokers who specialize in foreclosure properties routinely negotiate with banks and can help you navigate through the process of purchasing a foreclosed home. To learn more, contact your local ERA Real Estate Agent.