Advice on buying a foreclosed house

My husband and I are looking to buy a house in the next year. We’ve been keeping an eye on the market for the neighborhoods that we’d like to live in, so we know the good values when we see them. We want to have 20% down in the bank before we start shopping.

Our housing market was one of the more stable ones in the bubble-boom period, but there’s still a decent amount of foreclosures around, and in the neighborhoods we’ve been eyeing there are some great deals, anywhere from $75-95 per square foot. We haven’t been out looking at the actual houses, just on the internet. I’d imagine they have LOTS of problems, although in upper middle class neighborhoods I’d hope that they don’t have all the pipes ripped out and such. We can get our 20% down a lot faster if we’re paying $100,000 less on the house, though, and still have plenty left over for repairs.

We’ve obviously got no experience in shopping for and bidding on foreclosed houses. What can we expect and what pitfalls should we look for?

A lot of forclosed homes have have defeered maintenance that will need to be done. Figure you are going to need at least $10,000 for repairs before moving in.

Some work we had to do on our purchase. No ceiling light fixturres. Replace flooring in all bedrooms. Not heat (got bank to pay to install heating syatem). Paint. New rain gutters.

When you are ready to start looking do not be in a big hurry. Keep the listing sheets of houses that you look at and make notes on them. The reason for this is if you want to go back. we looked at a house, it was a nice house but no heater. We thought the price was to high so we passed. We kept track of the little house. the bank dropped their price but not enough to make it a really good deal. the second time they dropped the price we made an offer for about $8,000 less and they accepted.

Looking at real estate owned (REO) by a bank neans looking at homes that may need a lot of work or some with just a little. Some will have incomplete remodels. Some may be trashed. Some are in fair condition.

I would say you need to look at some houses to see what is out there. Then sit down as a couple and descide what tyoe of house will fit your needs. When you have a good ideal what you are looking for get together with a real estate agent and come up with a plan. If your agent understands what you are looking for then he can better serve you.

I’m a Realtor. And I bought a foreclosed home last year as an investment (and have worked with several buyers who have bought foreclosed homes). A few tips:

Like Snnipe 70E said, these homes can sometimes need a lot of work. Sometimes it can be obvious, sometimes less so. Get a good home inspector to take a good look at it, and if the bank isn’t providing a termite inspection, you probably ought to do one of those as well if you live in an area where termites are an issue. Don’t expect to get any repairs done unless you get them in the contract at the beginning.

Take a very close look at the contract and/or addendum that the bank sends you for the purchase. It probably differs greatly from the standard contract that is typically used in your area. Make sure that you understand things like how contingencies are handled, and be aware of per diem charges for late closings.

Since I’m a Realtor, this part is probably kind of expected… But find and work with a Realtor who knows your market inside and out. In some areas, these properties sit on the market for a long time and can be had for considerably less than asking price. But in some places (like my area) most of them are getting multiple offers within a couple of days of coming on the market, and a little more than half the time they sell for over the asking price. It’s pretty common for buyers around here to write offers on 4-5 houses before they get one accepted.

Good luck with your home buying adventure - one of the best feelings of accomplishment that I’ve ever had was the day I got the keys to my first home several years ago.

Be prepared for the seller to not give a shit about you. I went shopping for short sales and REO homes, and the experience is different than buying a house the ‘normal’ way. In my experience, the bank would collect offers, then whenever they felt like it would go through them and pick out the best one and possibly accept it. It could be days, or weeks, or months. I waited two months on a house I was in love with for the bank to say yea or nay on my offer before I said fuck it and moved on. They don’t have to play by the same rules as regular sellers, so they don’t, which sucks. The house I eventually bought it took them three weeks to get an offer back, even though I’d requested an offer in three days.

Even the house I ended up buying, the selling agent kept hounding me to prove that I would be able to make the payments before he’d submit paperwork to the bank that owned the house. As if it was his problem! I’d already been approved for the loan, so I don’t know what his deal was. It could be because I was getting a 0 down loan. I dunno. It was weird.

There were a few homes I saw that had been stripped, including one where they took the kitchen sink! But most were just kinda dilapidated and sad. That was fine, I was looking for a fixer anyway. Oh yes, foreclosed homes are never going to be new and nice. These were people’s homes and hearths, and being foreclosed on is a miserable, depressing experience. All those things you do to make your home look shiny and new, no one ever does when they’re being evicted.

Luckily, we have an awesome realtor from buying our first house, so that shouldn’t be a problem. We will definitely talk to her before looking at foreclosures. Some of the ones we’ll be looking at are actually in/near her own neighborhood, so she’ll be very familiar with it.

When we first started to see a lot of foreclosure listings in our area, this was very common. It’s less common now, but there are still a few cases like this. And sometimes if they get a bunch of offers, it slows down the process.

That’s probably not the agent’s choice. Most banks won’t look at an offer without a pre-qualification letter from a lender. In some cases, the bank won’t look at an offer unless it has a pre-qual from one of its loan officers. B of A and Wells Fargo are notorious for this. You don’t have to use them, but they do insist on a pre-qual with them. In some cases, they’ll offer an incentive to use them, like paying for the appraisal.

There are a lot of nicer, newer homes in our area that come on as foreclosures. We had a handful of new tracts that built up and sold at the top of the market, and a lot of those were sold with some very shaky 100% financing, interest only, adjustable rate loans. Those types of loans account for the bulk of foreclosures. We do see some intentional damage on occasion, but it’s not as common as you might think. We do see a lot of houses on the market missing fixtures, built-in appliances and things like that. I’ve seen a handful that were missing sinks. I’ve even seen some where they stripped out the toilets.

I bought my first house last March as an REO. It was tired, out of date, but sound and livable.
The couple who lived here were elderly and had been here for MANY years, I’m not quite sure how they managed to lose the house. It needs some major cosmetic stuff and could use better windows, but other than cosmetics, it’s in good shape.
I totally loathe the foil bathroom wallpaper, and I removed the bathroom CHANDELIER almost immediately, but it’ll do!

Be prepared to pay for a thourough quality home inspection from your own pocket as a contingency of purchase.

Make damn sure the property has no outside liens against it.

We bought a foreclosed on home in Dec 09.
Built in 1955, lived in by one family. Both of the original owners died by 2002.
Their son managed to lose the house by taking out equity loans --repeatedly.

Wells-Fargo kept giving him 2nd mortgage(s) until they were into him for >$100k. The son wasn’t one to keep a regular job, so soon he found he couldn’t make the mortgage payments (on the house he’d inherited-free and clear.)
We had a hard time getting the house away from Wells-Fargo even though we got our mortgage loan on the property from Wells-Fargo. Different branches of the company stumble on facilitating the selling-buying.
As others posters have noted this may be due to the property status, *we came away with the distinct impression Wells-Fargo did not want us the buy the property they were so desperately trying to sell us. *
[we had 30% down payment and had pre-qualified for 2x the mortgage amount, so that wasn’t the problem.] foreclosure=greater hassle

The one thing that I would say would be to be sure you differentiate between “essential” repairs and “cosmetic” repairs.

Also between repairs that must be done right now, or will lead to more problems and repairs that can be done at your leisure.

As a young (I presume) couple, you may be able to handle living in a “fixer upper” and do some of the stuff yourself, and do it at your leisure - having more house in the future.

Short sales and REO’s are two completely different things.

In both cases someone has to make a decision. With us it was putting in the forced air heater. One out four people had to make the decision to accept or reject the off. And each one was waiting for someone else to make it. They did not want to held responsible if someone above them question the offer. My agent had to call someone above them to give us a signed counter offer. And the main person that we were working with at the bank was no longer there, and we got a signed counter offer.

The other thing with a REO is the disclosure forms. All stated that the bank had no knowledge of the condition. Again do a home inspection your self take your time check everything make notes. Then make sure your realter has a good home inspector be throughal.

As far as other leins on the property, that is what title insurance is for.

Do not be afraid to make a counter off based on the inspection. At the same time that the house was being inspected he had a heating company come out and give us a bid on installing forced air heating. The bid was $5,100. We made a offer based on the inspector’s not of no heating. That forced air heating be installed at sellers cost not to exceed $5,100. After problems with no one wanting to be blamed for accepting putting in the heating system it finally got accepted.

I have been keeping my eye out for these homes in my area as well, hoping that I might get a great deal.

What I have noticed and what I’ve been told by my realtor.

  1. If it is a bank owned repo, they won’t do a contingency with you.
  2. no warranty on the house. You buy it as-is
  3. people absolutely trash these homes. I went to look at a 9500 sq.ft. house in a very exclusive neighborhood, because the price was incredibly low. They were still asking too much. The previous owners were not pleased when they were booted out, and it showed. It was a beautiful home, and I’m sure it could be again, but it would take an investment of funds that I just don’t have.
  4. with that knowledge, get a trusted home inspector, and go over the houes with a fine-toothed comb. I can’t imagine what things people might have done in the attic, for example, if they wanted to really sabotage the home.

Good luck! I have heard about great stories, but I’ve also heard about the nightmares. Our realtor has been great, and very open about what to expect. I continue to keep my options open, but if I find a house that is in my price range that hasn’t been foreclosed, I’ll probably go that route.

Banks do contingencys.
But you are right they offer no warranty.

I’m a little confused. Do you intend to sell your current house to buy a new one, or is this an investment?

Just curious, because I think that the answers to your questions would be a little different (maybe like, don’t!)

Buying a new one to move into–we’ve outgrown our first house now that we have a kid, and we want to move to a better school system.

Even if the pipes, the fixtures and everything else is intact the place might still have issues from being empty for so long. If the gutters aren’t cleaned, water won’t drain properly and that can cause some foundation problems. Also, I don’t know where you live, but if you’re up north, and a house hasn’t been properly winterized, that too can cause all sorts of havoc.

Like a number of people have said, get a good home inspector. And I’d add: take the time off from work to accompany the inspector while s/he gives the house the once-over.

Both times we’ve bought a house, I’ve been there with the inspector as he did his job. And I learned a great deal from him, in each instance, about the house we were buying that wasn’t particularly obvious. In neither case did they find anything that was costly to correct and needed to be included in the contract, but just a lot of “if you own this house, you really ought to know this” type stuff - things I should do to keep things in good shape, things that might eventually break down and what to do about them, what to replace X with when the time came to do so, all sorts of good stuff.

Even when buying a house under normal conditions, a home inspection is essential, and worth (many times over) a few hundred bucks and a couple of hours of your time to tag along. (If the inspector doesn’t want you along, hire a different inspector!) In a foreclosure or other situation where there were reasons to be worried about the condition of the house, I’d rather have a tooth pulled without anesthetic than to buy a house without having an inspection done. I’d get over the pain from the tooth a hell of a lot sooner.