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 RealtyTrac.com , three-to-four times the usual number.
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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- A better place to start: look in neighborhood. Best guess: (mean salary + 0.5*lesser salary if a partner exists) = available salary. (2*available salary + 20% down) That should be the mean price of the house in the neighborhood. Remember: an extra bathroom and family room will mean: more taxes, utilities, furnishings, maintenance, depreciation, mortgage fees, real state fees, etc. Also, if you stay in your house for seven-ten years; costs like this will exceed your mortgage. If you?re investing, you should be looking at the expected change in the personality of the neighborhood not the past housing prices. Then start with your homework.
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- I catch this show in the morning before work and I was very upset that you had an expert on the show and were discussing short sales and no one seemed to have a clue what these are. For you expert to say that pre forclosure the buyer might assume the 2nd morthgage etc. hence a short sale that is bull. A short sale is when the amount on the property owed is more than the property is worth. For the seller to sell it the whole thing must be approved by the lender or if there are more than one lenders. The owner may have the balance of t he loan forgiven but not always. The seller can not just enter into a contract and go to settlement.
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- "It is also true that many of the top execs of mortgage companies are now making millions..."
The former head of Countrywide Mortgage is making a killing in this REO market. The same market he destroyed with easy no doc, no down loans. Wreck them on the one side and bottom feed on the other...what a country. - Reply to this comment
- " Many of the people buying REOs are the same people that made money before the crash. They show up at auctions with cash made from flipping before 2008.
Posted by sjc_1"
That is true. It is also true that many of the top execs of mortgage companies are now making millions in the modification-property liquidation businesses. Those with money control business. It is not fair but that is how the world works. - Reply to this comment
- The issues with a foreclosure can exist with any home. What a bunch of BS. Buyers must be careful of any home purchase and do their homework. Duh.
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- Many of the people buying REOs are the same people that made money before the crash. They show up at auctions with cash made from flipping before 2008.
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- Interesting but short article. Buying at a foreclosure auction don't forget you'll be the one who has to evict any previous owners or tenants, you'll have to worry about the house being trashed, you may have to wait months before you can effectively take possession.
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- Buying a foreclosed home or a home stagnant on the market can be a value to home buyers but full of occupational health issues. We have seen an increase in water damage from moisture intrusion through roofs, siding, and basements due to neglect and maintenance. Other homes have a variety of issues including mercury contamination from thermostats and relay switches, fluorcarbons from refrigerations, and heavy metal contamination from solder on pipes affecting the drinking water, peeling paint containing lead, cadmium and other heavy metals, and asbestos-containing materials. Most foreclosed homes are NOT inspected for these potential health hazards by the typical home inspector. If someone is considering buying these homes, the buyer should seek the opionion from a professional consultant, who is certified by the American Board of Industrial Hygiene as a Certified Industrial Hygienist (CIH) or Board of Certified Safety Professional (CSP) and has residential construction and remediation experience. Where necessary, bulk, surface, or air testing should be done to evaluate the environmental conditions inside the home. A true professional can also provide insight on sources of contamination, water or moisture intrusion, as well as a plan to make the house habitable for all occupants, especially for the very young, elderly, and those individual compromised by disease or medication.
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- con. on bank owned. you make offer and bank never lets you know one way or the other about your offer
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