                                     
The first step is to understand how the foreclosure works. A homeowner has to be in arrears on their mortgage payments long before the bank initiates foreclosure, a process that
could take up to a year in some states. Once the property is formally in default, it's offered at auction. Auctions are not for the squeamish. Not only will you be competing with
professional investors (and even sometimes the bank), but if you should win the bid, you'll be paying cash right then and right there on a house that you may not have had time to examine.
Talk to a Realtor knowledgeable in auctions before you decide to bid.
If there are no bidders at the auction or the bank wins the bid, it becomes a real-estate-owned property (REO) and gets officially put on the market with a local
realtor to sell.
Another type of foreclosure property available is Department of Urban Housing & Development (HUD) homes. These are the result of FHA-financed loans defaulting and sometimes are not priced
low enough to warrant the time and effort involved in renovating. But there can be some excellent deals, so don't automatically exclude them.
However, before all of this takes place, before even the thought of defaulting on the mortgage is but a twinkle in the eye of the homeowner, you should secure your financing. The ideal
offer on a foreclosed home incorporates the best of both financing and terms.
Full price or above, cash, no inspections, closing in 5 or less days would make the banker most likely accept your offer right away without going back to the
local realtor who is listing the home for them and require them to get more bids before they accept the final offer.
But if you don't have the cash you need to make that kind of offer, you'll need to talk to a lender. Find a lender who has worked with investors and knows the ins
and outs of investment financing.
I can say, though, that you can most likely forget about FHA or VA financing; because although they've lowered the standards a smidge regarding condition of a property, most foreclosed
properties won't meet even those standards. That's because most foreclosed homes have been ridden hard and put away wet.
Think about it. Although they know that it's their fault, the bottom line is that the former homeowners are still out on the street . . . and there might be just a little resentment
directed towards the bank. In laymen's terms, they could really trash the place. Not uncommon is food strewn about the house, burns on what's left of the carpet, holes in the walls and even
feces outside the commode. Add to all that the fact that the electricity has no doubt been shut off, rendering the A/C ineffective, and what you have is a really unpleasant combo!
Even more damaging (though significantly less repulsive!) is if the bank isn't able to winterize the home in time and the plumbing sits inactive through the winter. Water expands as it
freezes and can burst a pipe quicker than an unvented potato in the microwave. Keep all of that in mind when you're viewing the property. Some homes just need a really big dumpster!
Once your financing is in order, you should find a Realtor experienced in foreclosure sales. They've got the skills and paperwork necessary to walk you through the process. And your Realtor
will be able to put you on an MLS search, precluding the need to pay for online services.
It's essential, in order to compete with professional investors, to be able to view a home and put an offer on it on the same day that it becomes available. If it's a good deal, which means
the current price and future value supports the amount of money needed for repairs, it'll be gone quickly. In fact, many times the agent will put on the listing that "all offers will be
submitted to the bank M-F" and "may take several days for a response." Not necessarily so. Yes,
bankers work banking hours, but if you're proffering the ultimate offer, they'll verbally accept as soon as the agent can get ahold of them. Of course, a verbal contract is only as good as
the integrity of all the parties involved . . . so get signatures ASAP.
Walking through the home beforehand is important, very important. You don't want to buy it for a song only to find out that it needs $12,000 in structural support piers or thousands of
dollars in mold remediation. There will always be surprises, but you want to minimize what you can when you can.
Once you've found the home and decide to make an offer, meet with your Realtor. He or she will write the offer up for you.
If a property is fresh on the market, you'll want to get as close as you can to the perfect offer so you won't be in a bidding war with other buyers.. The
results of the research initiated by your Realtor will determine the direction your offer should take.
For instance, it will be unlikely that you will have to pay full price if a property has been on the market for several months. However if it just came on the market
and its been priced low to attract as many buyers as possible you will most likely be bidding higher than asking price and offering great terms to close as fast as you can.
If a foreclosed home has been sitting on the market awhile, it's either in a less-than-desirable neighborhood or it's overpriced. Period. It may not be overpriced for the neighborhood, but
it's overpriced for the amount of money needed to bring it to a marketable condition.
The first thing to address is your earnest money deposit. Whether you're offering cash or not, you'll be required to submit an earnest money deposit, usually a percentage of the total
amount offered. Some banks will demand a forfeiture of the earnest money after a certain number of days, whether you follow through with buying the property or not, so have any inspections
within that time frame.
Foreclosure properties are mostly sold as-is, which means that you can have inspections, but the bank will not make any repairs (the exception being termite treatment, and even then
the bank might put a monetary cap on it). Many buyers waive the right to inspections in order to make their offer more appealing, but I always encourage inspections in one form or another,
either a licensed home inspector or licensed contractor. You want that "out." Better to risk the deal by indicating that you want inspections than to learn of major issues after you close.
You'll also be required to sign a multi-page Addendum of some sort releasing the bank from any liability associated with the home. I've seen some as short as two pages and others as long as
30. And every single page essentially says the same thing. "We know nothing about the property, make no representations about the property, and are not liable for anything at all ever
related in any way to the property. Ever. You are." If you're the type to bristle at inequality, this'll make your hair stand on end. Not only is it completely biased, but to add insult to
injury, you may be required to sign something stating that it does not show partiality! If you want the house, suck it up. There are few areas to negotiate on the Addendum,
and if you can find them, more power to you! But one thing that's steadfast with regard to the Addendum: if there's a conflict between the Sales Contract and the Addendum, the Addendum will
win every time. So read the Addendum carefully, as will your Realtor. Just grit your teeth and you'll get through it.
Some Addendums require that you close with the bank's closing agent. That's not so bad, because if you do, many will pay the title insurance for you and your lender. Title insurance is a
one-time fee protecting you (and your lender) from losing your shirt should something come up to make the sale invalid after closing. You won't get to keep the house, but you'll be
financially reimbursed, if nothing else.
Closing a foreclosure home is no more difficult that closing a "normal" property. Sign papers. You own it. All done.
Always remember, though, that doing the work on the front end will help minimize surprises on the back end.
Their are many great deals available today.
Investors have realized that this is the "time to buy" and they are scooping all the good properties daily.
They know a deal when they see on.
Cape Coral Florida Real Estate Home Listings.
Professionalism, Promptness and Courtesy, are my 3 tools to success.
Tony Vadala, Broker Associate
"Your Hometown Realtor"
Direct: (239) 898-2120
Contact Me
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