What leads to foreclosure
Foreclosures happen for a variety of reason. Sometimes it's as simple as not being able to make timely payments on a mortgage. This could be because of a change in family status, a lay-off from a job, or large medical bills. Most of the time the current homeowners are often not aware of the foreclosure laws and what they can do to avoid foreclosure.
Other Foreclosures happen purposely. If a property's cost are no longer sustainable for the current owner, he/she might place it into foreclosure. About three years ago a popular resort area went into foreclosure simply because all owners agreed that the cost of upkeep was not sustainable. In short - it cost too much to keep it open and nobody wanted to be left holding the bag.
Know the right people
Just like in other business ventures, knowing the right people is half the work. If you buy a foreclosed property to live in yourself, you might just want to take a trip down to the Cityhall or Courthouse and have a chat with the Registrar of deeds and the Property tax office staff. These two office can be vital in disclosing information and can keep you from making a ,potentially costly, mistake.
Get to know the neighbors of the foreclosed property. For us that was easy, because the towns we bought in were really small and we knew most of the townspeople anyway, but if you are buying in a larger city, you might want to drive around the neighborhood and talk to the neighbors, the businesses, etc. This can be informal "Hello, I was just wondering if you know Mr.XYZ. I heard he had some financial problems and I think maybe I can help him out a bit"
Foreclosures are posted several weeks in advance in the local paper, so don't be shy talking about somebody elses financial problems, chances are the neighborhood is well aware of it already. And if you offer to "help out" they might give you information that's not available otherwise.
Why you can't approach the homeowner directly
In most Counties you are not allowed to approach the homeowner directly. This will protect the homeowner in case they are able to turn the foreclosure around at the last minute and it will also protect you. If a homeowner decides to talk to you during the foreclosure process, this might be construed as a potential offer and could get him in big trouble with the Mortgage Company.
We have, on occasion, approached homeowners. But not in an illegal way. These were people we knew anyway and we have offered to make a bid on the property, but made the homeowner aware that we only have so much money to spend. On one occasion we bought the house at auction and rented it to the homeowner. After several years we turned the rental into a land contract and the person now owns their home free and clear. But that was a very special occasion and not something we routinely do.
Going into the neighborhood and getting information is for your own benefit. Are the homeowners suspected of being "low-lifes"? Then the property is probably a mess inside and out and might not be worth bidding on. Do they owe money all over town? Then you need to carefully research what liens are on the property. That could drive up your purchase price considerably and might not be worth it. But if you get the feeling that the current owners are decent, hard-working people that just had a bit of bad luck, you might be bidding on a bargain.
Understanding a foreclosure advertisement
Foreclosed Properties are advertised two ways. Once in the local paper and once at the courthouse. This is pretty much true for most states. Certain Counties only advertise at the courthouse, so you need to do a bit of research.
The typical foreclosure advertisement will have information about the owners (Name, etc.) and a legal description of the property. Some have a valid street address, but for the most part it's the legal description that counts. And that's were your friends at the Registrar of Deeds office come in. In our County that's were the Platbooks are kept. Take a trip down there, find the Platbook and determine the physical address.
The next item in the advertisement will often read like a bunch of "legalese". It will list not only the Property owners, but also all persons and businesses that have liens against the property. WATCH OUT - these are only lien holders that are recorded at the point of foreclosure. It could easily happen that a bunch more pop up once you buy the property or are in the process of bidding. Lienholders can be anyone from Construction companies to Utility companies. If the current homeowner is behind in paying their bills, a person or business can file a claim (Lien) against the property. Meaning when it's sold, these debts go with it. Chances are if there are a lot of liens against the property, you might not want it. Even a lot of smaller liens can add up to big bucks and you will be responsible for all.
Property taxes that are still owed on the Property are not recorded in the foreclosure notice or advertisement. See the paragraph below on how to find that information.
The foreclosure notice will also carry information of the original lien or mortgage holder. This is typically a law firm that is retained by the mortgage company or even the mortgage company itself. You cannot make contact with the original mortgage holder, unless you plan to pay the full price owed on the property right then and there. We did this once - BIG MISTAKE. That was one property we didn't even bid on.
Time for some serious research
After you have determined which property you want to bid on, you will have do a bit of legwork. Do this in person whenever possible and not by phone. You will receive much more information if you actually go to the Tax Assessor's office and the Registrar of Deeds. Be honest. Tell them you want to bid on a property that's slated for auction and need this information to see if you can do that. Some of the information will require that you fill out forms and pay a small administrative fee, other information is available for free.
Go to the Tax office in the County the Property is located at and have them run a check. This might cost you a few bucks, but for the most part the tax assessors will be helpful and do it without a fee. We found that if we tell them why we are doing that, they are much more helpful, especially if they know the current owner and like him. Again you should emphasise that you are trying to "help" the current owner.
Talk to a Real Estate Agent or find Real Estate Companies on the Internet that offer properties in the same area. Find out what comparable homes go for. It's no good to bid a bunch of money on a property that has lost value over the past few years, because it needs extensive remodeling or updating. Unless you can make the ratio of bidding price and remodeling budget work and still come out ahead, you shouldn't bid on the property (at least not as an investment).
Viewing the Property
In none of the Counties we have bid on Properties was it allowed to view the property on the inside. If you do it anyway, you might be excluded from the bidding process. This is mainly to protect and (already traumatized) homeowner. Imagine if you would loose your home and now there are people lined up at the door at all hours asking to get a tour. There are also homeowners that don't take kindly to having their property put into foreclosure. We've never been shot at, but we had a few dogs chase us down a drive-way.
If you personally know the homeowner and he happens to invite you in for a chat, that's okay. It's also okay to call the homeowner if you know him personally and tell him that you plan to bid on the house.
Use a bit of common sense when doing your drive-by. If the yard looks like the local dump station and the exterior of the house needs about $25.000 worth of paint, chances are the inside does not look much better. A bunch of tarps on the roof indicate a serious leak. Broken windows and doors could mean that the property has been vacant for quite some time.
A property that looks decent but has boarded up windows can be okay to bid on. If the homeowner has left, the mortgage company might send someone to board up the windows and protect the property from illegal entry. This happens especially in larger towns.
The actual auction
In smaller towns a foreclosure auction is held on a certain day of the week. One town we know still has the sheriff auction the properties on the courthouse steps. A homeowner that has a property placed into foreclosure cannot bid, but he can be present at the auction. He can also have people bid for him.
The purchase price is determined by many factors. The mortgage company or lienholder typically tries to get at least the money that is still owed on the property or even the value as determined by an appraisal. It really depends on the company here and where the property is located. We've seen houses go for as little as $30.000 and for as high as several hundred thousand dollars. I've never seen a house go for as little as $500.00 like they advertise on TV.
Once you have successfully bid on the property it's time to pay up. You will need 10% of the purchase price as soon as you have received the okay. This money is paid to the treasurer or the sheriff's office. Cash is okay, but so are certified checks. We usually use cash, because we won't know beforehand how much we are paying for a property and, that way, we don't have to carry Cashier's checks for a variety of amounts.
The rest of the bid amount is typically due within 30 days and cannot be in the form of a mortgage. You can't make payments to the treasurer for the next 20 years. The amount is due in full within 30 days.
It is possible to get a small extension on that 30 day period, especially if you are known to the county officer who collects the money. We've filed for 10 or 15 day extensions at times and have received them, but they knew us pretty well too. Getting an extension of more than two weeks is pretty much impossible.
If you can't come up with the amount required to purchase the property, you will most likely forfeit your initial deposit and the auction will begin again. County laws vary a bit on that, so check before you bid.
A property that does not receive the "reserve" required by the mortgage company or lienholder, might be removed from the auction block and either sold or auctioned at a later date. Sometimes the difference between the maximum bid and the amount required can be as small as a few hundred dollars. Some auctions will start the bidding at the amount that the lienholder requires, others will leave the minimum amount open to the bidders.
If a property is withdrawn, you might want to find out what the minimum amount is. If it's just a few bucks more than the maximum bid you can ask to have the bidding reopened after all the other properties are sold. This could potentially be advantageous, because other bidders for the same property might have already left, leaving you the only one there.
You might want to attend a few auctions without bidding, just to see the process.
Talking to other bidders
We often talk to other bidders. We find out if they are local and we watch what they do. If they keep their bids very low and they are local, they might know something about the property we don't. That's when we sit on our hands (or bidding paddles) and go for another property.
Pick the other bidder's brains. Find out how long they've been at it, how often they bid on foreclosed properties and what their biggest mistakes were. Most don't mind parting with a bit of advice. Learn as much as you can about local laws, people involved in the bidding process, etc.
Know your limits
Auctions can get heated. If there is a prime property, many people might bid on it. You should have a list with comparative property values and your maximum bid amount.
It's easy to get carried away once the bidding process starts. Know your limits. Don't bid more than you can comfortably afford. Keep in mind that you might have to pay other cost, such as current property taxes, title company fees and clean-up or remodeling fees.
Because markets vary wildly, there is no rule of thumb how much to bid for a property. If you find it's worth it you can go as high as you want. But make a budget and stick to it. If you don't think you can, leave after it becomes clear that someone else bid higher.
6 THINGS YOU NEED TO KNOW ABOUT BUYING A SHORT SALE
When you spot a short sale house that interests you, take your hand off the mouse and step away from the computer. Before you get all excited over the prospect of buying that short sale house, pick up the phone and call your real estate agent. Your agent needs to research that short sale listing first.
In some real estate markets, fewer than one in 10 short sales close. Just because that home is listed as a short sale doesn't mean it's really for sale (because it's subject to lender approval), nor does it mean it will sell at the advertised price. Here are 6 things you need to know before trying to buy that short sale. The short sales I list in Sacramento are all priced below comparable sales, yet they are priced in line with pending sales. Why? Because short sales take anywhere from 2 to 4 months, on average, to close, and pending sales will become the comparable sales at closing. Some short sales are priced ridiculously low. So low that the sellers' bank will never accept them. These types of listings receive multiple offers. But all is not lost. To get your offer accepted, it will need to be priced near market value. If you're not prepared to pay above a superficial price on a lowball short sale, then pass. Ask your agent to research how much is owed against the home and find out the number of loans that are recorded. A second or third mortgage lender will receive peanuts as compared to the amount a senior lender in first position will get. Moreover, some lenders, deserving or not, get a reputation for being difficult to work with. If your agent is an experienced short sale agent, he or she will know who these lenders are and can advise you of the difficulty you may encounter. If your offer is 20% or 30% of the mortgaged amount, it is unlikely that your offer will see the light of day on the negotiator's desk. A listing agent who is advertising a short sale but has never closed a short sale is a risky proposition for you. That's because it's up to the listing agent to submit the short sale package to the lender and negotiate. Your buyer's agent can't talk to the bank. Some listing agents hire outside companies to do their job, and the results of those negotiations are sketchy at best. Ask yourself, do you want to risk rejection of your short sale purchase because the listing agent has no experience? Find out if the listing agent has received a completed short sale package from the seller, and ask about the contents of that package. A complete short sale package consists, at minimum, of the following: Some sellers do not want to cooperate and are slow to return these documents. Others have never been told by their agent that these documents are mandatory. You don't want your short sale purchase delayed because the listing agent doesn't have the required documents. Here's how it generally works: You want to make an offer that will beat the competition yet still be below market, or don't waste your time. Although REALTORS are required by the REALTOR Code of Ethics to treat everybody fairly, not every agent is a REALTOR. This means the short sale listing agent may decide to submit only the first offer to the bank and withhold all other offers. Withholding other offers could be considered to be a violation of the fiduciary relationship formed between the listing agent and the seller. The seller is entitled to receive the highest and best price. Realize that even if your offer is submitted to the bank, as time marches by while waiting for short sale approval, another buyer could outbid you.Comparable Sales For That Short Sale House
Mortgage Amounts, Number of Loans and Lenders
Short Sale Listing Agent's Track Record
Short Sale Seller Qualifications
Number of Short Sale Offers Received
Home priced under market value will receive multiple offers. An agent is not required to disclose the terms of those offers, but you do want to know how many offers you are up against.
The Listing Agent's Short Sale Procedures