A home foreclosure occurs when a lender decides to sell a house because the homeowner has been unable to make payments on the house. With a home mortgage, the house is the collateral the bank or lender will sell if the homeowner doesn’t make payments.
Although the prospect of facing foreclosure is something no one wants to experience, the foreclosure of a home does offer prospective homeowners the chance to own a home. Here’s what you need to know about whether you should buy a foreclosed home.
Buying a Pre-Foreclosure Home
The bank or lender won’t sell a home immediately when a homeowner doesn’t make a payment. The bank will usually give the homeowner some time to satisfy the debt or to sell the property for cash to pay off the mortgage.
The pre-foreclosure stage is where a potential cash buyer may want to make an offer on the house. Selling a home that hasn’t yet fully foreclosed offers the homeowner the chance to get out from under a mortgage and to sell the property without the final foreclosure staining his or her credit for years.
A home in pre-foreclosure might actually experience a bidding war if the home is situated in an area with high demand, but purchasing a home that hasn’t yet reached full foreclosure is often a little easier than waiting for the bank auction to occur. The caveat is that you must have cash on hand to buy the house.
Another issue is that pre-foreclosure homes don’t always reach the open market, so sometimes it’s tough to even know if a home is for sale or whether the owner is in the process of trying to cover the outstanding debt he or she owes on the mortgage.
Attend an Auction to Learn About Buying a Foreclosure Home
In most cases, a home that has been foreclosed on will see itself placed at auction by the bank or lender. Some auctions are small with just a single auctioneer or a bankruptcy trustee in attendance and a few buyers. Other auctions are handled by large firms that sell many properties at the same time.
Real estate listings website Zillow recommends that prospective buyers attend a few auctions before they really try to purchase a house. They also offer this advice:
“When you’ve found a property you want to bid on, contact the auctioneer or trustee to determine how much money you need to bring to the auction; the amount varies from state to state. Many auctions require bidders to bring a certified check for $5,000 made out to the auction company to show legitimate intent. In some cases, a percentage of the winning bid is required on the day of the sale. Make sure you research auction requirements in your state before bidding on a foreclosure.”
It can be very tough to come up with the amount of cash that is necessary for auction day, and many of the buyers of foreclosed homes at auction are corporations that make a business of buying and selling foreclosed homes. Attending a few auctions before you actually intend on bidding can help you understand how much to bid on a particular type of property.
Condition Versus Price When You Buy a Foreclosed Home
One of the biggest issues that can occur when you buy a foreclosed home is that the condition of the home may be somewhat terrible and the fact that you can’t always tour the home before you buy it. Sometimes, you have to purchase the home after seeing nothing more than the exterior of the house.
If you’re not prepared for the prospect of making some major repairs on the house, you might find it difficult to actually go through with purchasing a foreclosed home. If, on the other hand, you’d like to find a fixer-upper, a foreclosed home could be the answer, as long as you’re able to outbid professional home “flippers” and get the cash necessary to purchase the home.
Are You Dealing with Foreclosure or Other Real Estate Issues?
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DISCLAIMER: All information on this website is provided for informational purposes only and is not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein or any actions taken in reliance thereon.