NEW YORK, April 3, 2009
Buying Foreclosed Homes: Be Careful
Vera Gibbons Leads You Through The Process, Posting Caution Signs All Along The Way
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(CBS)
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But Early Show financial contributor Vera Gibbons says the process isn't for everyone: It's complicated and fraught with potential stumbling blocks.
There's certainly no shortage of properties in or approaching foreclosure to pick from.
Some three million foreclosures are expected this year alone, according to the Web site
Prices usually range from 20 to 80 percent below market value, depending on where the house is located.
But the process involves much more risk than buying a home the traditional way, Gibbons says.
So, where do where to start?
First, you have to find properties, and the Internet makes that easy, with sites such as
The best bargains are in areas with the largest concentration of distressed properties, where there's a glut of homes banks want to unload.
But doesn't mean you should simply go for least expensive ones.
You must do your homework, taking into consideration the neighborhood, employment picture, school district, etc.: If you buy in an area that's losing jobs, has a high crime rate, etc., it's going take lot longer for home values to recover.
You could check out pre-foreclosure sales, in which you buy from owner before the house is formally foreclosed on. A "pro" of that is that you're dealing directly with the homeowner, who will likely be a very motivated seller at that point. You can inspect house, do a title search, etc. The homeowner would be able to sign the deed over to you; you'd assume the mortgage, and make any back payments due the lender. A "con" is that you'd be dealing with a seller who may be emotionally and financially distressed. There's also a short window in which to buy: Depending on the state, owners may only have a month before the bank puts the property up for auction.
The next stage in the foreclosure process is the auction. The obvious "pro": the prices. The "cons" include this being the riskiest way to buy, particularly if you're new at it. Investors like this method; they tend to renovate houses they buy at auction, then turn them around or rent them. But you're buying a house sight-unseen, with no inspection. It could be a total mess and in need major repairs. It might be a total lemon! Also, there may be unpaid taxes and liens that you, the new owner, would be responsible for. And you can only use cash or a cashier's check to pay.
If the house doesn't sell at auction, the bank that originally issued the loan takes ownership of the property and puts it up for sale through a real estate broker. Fifty out of every 100 properties now going back to the banks; this year, more than a million will be bank-owned. "Pros": There are lots of unsold homes to unload, so prices are likely to be good. Also, this is the safest and easiest way to buy foreclosed property, and you can get it with a traditional mortgage. You'll also have a chance to check and inspect the house before you buy it. A "con" is that you may not get as good a deal as you would from the auction block. Still, at least you know what you're getting, and can get it inspected.
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- Unpaid tax liens are a very common attribute to homes that are in foreclosure. Once an owner realizes that he/she may lose their home to foreclosure, there is little to no value in paying the real estate taxes. Make sure you check the title to the property to see how much is outstanding, as well as, who's responsibility it is to pay the taxes current. It typically falls on the buyer's shoulders to pay current balance and past-due penalties and interest. This can be an unexpected cost above and beyond the base price of the home.
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