As the real estate meltdown accellerates, I am looking for a bargain house. I’m told that when a bank forecloses on a homeowner, the bank wants to sell as quickly as possible, and will sell the property for the amount of the loan. So how does one get a good deal at a foreclosure sale? Do you need a lawyer? And, can you pick up a nice house on the cheap? Or is most of this property in bad shape, bad neighborhoods, etc.? :smack:
I don’t do this myself but my FIL has done it for 40 years. It really isn’t for amateurs. You can find all types of property, even some pretty high end ones and the only catch is that you have to know what they hell you are doing, be ready to move, and have the finances lined up to do it right away.
Things vary of course but a typical set-up is you get a few hours one day to assess the property. Shortly after, often the next day, you come in and make a bid. You can generally forget about $10,000 for any reasonable definition of “house” but the winning bid usually ends up about 10% - 20% under market value. The catch is that it is up to you to know the value of the property on your own. It is very possible to pay over market value because you don’t get to do thorough inspections and research like regular home purchases.
If you win, you often have to have the money on the spot. That’s right, you have to hand them a check for $x00,000. Sometimes you may have a day to get everything done. You will be competing against institutional buyers, developers, and contractors who want a good deal as well but generally have much more experience and cash on hand.
Individual buyers can get a good deal but you better do some homework first.
With regards to the second half of your message - Yes, the properties are mostly in bad shape, independent of the neighborhoods. I’ve only been involved in a few of these, so my experience may be limited… but most of the houses have had fairly decent amounts of interior damage, extensive landscaping damage (dead lawns, bushes), and misc. other problems (leaks, damaged carpet pads, etc.) Basically, when the owner finds out that they are being foreclosed upon, they give up and just smash the place. However, if you get the house at a $75,000 discount, and only have to spend $30,000 bringing it up to snuff, then there’s still a $45,000 profit.
You want houses? The government has houses! Lots!
Not only are HUD homes listed, but several other government agencies have foreclosed homes for sale.
Depending on your job, you might get a ‘special deal.’ From the HUD site:
“Are there any special programs?
Properties in designated areas are available at a reduced sales price to police officers, teachers, firefighters, emergency medical technicians, nonprofits and local governments. Read more about these Good Neighbor Initiatives.”
It sometimes happens that a foreclosed house is sold even though someone is living in it. The occupant might be the former owner who refuses to get out, a tenant of the former owner who likewise won’t move, or a squatter who came in from the cold.
Depending on where you live, evicting these unwanted residents can be a major pain. It can take weeks or even months and and require expensive legal intervention to get them out. Before you finally oust them, they’re going to trash the place out of spite. Make sure any property you bid on is unoccupied.
That’s interesting. So the bank has no duty to the mortgagor to ensure that the property sells for a reasonable price?
If they’ve already acquired the property in a foreclosure, they no longer have any relationship with the borrower.
Most banks only want their principal and interest owed to them.
I think people are talking about two slightly different things, a foreclosure auction sale and post-forclosure REO (Real Estate Owned) sale by the bank.
What often happens (varying by jurisdiction) is that under the foreclosure process there must be a public auction of foreclosed property (often “on the courthouse steps” – in Manhattan they hold them in the courthouse rotunda). At the auction sale an outside buyer can bid and buy the property. However, if the bank thinks the bids are insufficient, the foreclosing bank can bid for the property, using the debt owed instead of cash.
When this happens, the bank gets the property as REO property, which the bank can sell in an ordinary negotiated transaction as it sees fit. They, at a minimum, want to get back the principal and interest owed on the loan plus their costs of foreclosure, if possible, but they’d like to make a profit as well if they can.
The whole process is very risky for the inexperienced. One additional thing not mentioned to watch out for is that the foreclosed owner may in some jurisdictions have redemption rights that can pull the rug right out from under a buyer.