Foreclosure filings spiked in the height of the housing crisis, and for many years, foreclosed homes were readily available. However, today in many parts of the country, foreclosures are less common, but there may still be some available for patient home buyers. If you're thinking about purchasing a home in foreclosure, the following tips will help you understand the process and get the best value for your money.
Home Auctions Vs. Home Traditional Sales
Homes in foreclosure are usually sold in one of two ways: through an auction or through a traditional sale. Auction sales are usually at the county courthouse. They can be competitive, complicated and somewhat mystifying to the inexperienced buyer. If you plan to purchase a foreclosed home at auction, the buyer usually needs to have the cash on hand (or a cashier's check) for the purchase, and they may be held responsible for evicting the current occupants if they win the bidding process. Do research about the property before putting down a bid, including finding out about debts owed on the property, as you may become responsible for these debts after purchase.
If the home doesn't sell at auction, the lender usually takes possession of the property and will sell the home in a more traditional fashion. This is often called a "bank-owned property." In some cases, the bank may hire a real estate agent to manage the sale of the property, and in other cases the home will be sold directly by the bank. Either way, your real estate agent will help facilitate the purchase and help guide you through how to buy a foreclosed home.
Are Foreclosures Good Deals?
Buying a foreclosure can present many challenges and risks. Proceed carefully! Always seek expert advice from your real estate agent.
Foreclosed homes are usually sold at a discounted rate - however, in hot real estate markets, this may not be the case. For homebuyers on a budget, planning to buy a foreclosed home might be an effective way to acquire a property in a more expensive neighborhood for less money. However, not all foreclosed homes are a good financial deals.
It's important to remember that foreclosures usually happen when homeowners fall on hard times, and many foreclosures can drag on for months before the occupants are evicted. During that time, home maintenance and upgrades are usually put on hold. By the time they are sold, many foreclosed homes are in a state of advanced disrepair.
High repair costs can negate the savings that come from buying a foreclosure home, especially because most foreclosed properties are sold as-is. As a home buyer, you'll need to know exactly what kind of repairs to expect after purchase, and what the cost of the repairs will be. Have the home inspected by a capable home inspector, and have all your repairs priced by contractors.
Keep in mind that many homes in foreclosure have no electricity or water, which can make assessing the condition of the home more challenging. Work with the bank or mortgage lien holder to have the utilities turned on before getting your inspection done, and be prepared to pay a fee for the trouble.
Foreclosure Home Buying Timeline
When a home enters into foreclosure, it follows a highly regulated process meant to either allow the current homeowners to rectify their mortgage payment standing or to remove them from the house so it can be sold.
The foreclosure process begins with pre-foreclosure when the current owner of the home falls behind on their mortgage payment and receives an official Notice of Default from their lender, which is filed with the local records authority. Should the homeowner be unable to pay according to the instructions dictated in the notice, they enter into the auction period.
Should the mortgage loan not be reinstated during the pre-foreclosure period, the lender will attempt to sell the home at public auction to recoup their losses on the cost of the loan. The minimum bid on a foreclosure is generally equal to the remaining amount owed on the home, plus fees and costs to the lender. Auctions are often highly competitive, and investors can be expected to required to pay cash for properties bought at auction. Should no acceptable bid be entered during the auction period, the home will be placed on the market as a "bank-owned" or "real-estate-owned (REO)" property.
Bank-Owned and Real-Estate-Owned Properties
If a home isn't sold at auction, it's placed on the market by the lender or a real estate agency they have contracted to manage the sale of the home. For prospective investors interested in buying a foreclosed home at this stage, it's essential to approach the process with patience. The transaction process for purchasing a bank- or real-estate-owned foreclosure is often much slower than the process of buying a home in a conventional real estate transaction, because the lender has to manage clearing the title, managing state-by-state foreclosure requirements, and prepare all the other foreclosed homes in their possession. Prospective buyers can expect to wait months for a transaction to finalize.
Foreclosure Delays and Governmental Red Tape
Working with a bank or financial institution is not the same as working with a traditional home seller. Offers, contracts and paperwork can take weeks or months to process. Get ready to wait when making an offer on a foreclosure. Your real estate agent should help cut back on the frustration by doing the legwork and tracking the paperwork as it moves through the system.
And remember that very often, the bank will not be as open to negotiation as a homeowner might be. Banks and financial institutions have investors, owners and/or shareholders who expect the institution to make a profit. Therefore, not only may the process take a long time, certain elements of the contract may be asked to be modified and changed as it moves through the system.
When Buying a Foreclosure, Work With an Experienced Real Estate Agent
Working with an experienced real estate agent will help ensure a successful purchase. Your agent will be able to answer questions about the process to help you understand the particulars of purchasing a foreclosure. Your agent may also help you determine whether or not the foreclosed home you wish to purchase is a good deal, and if the property is worth pursuing based on necessary repairs.
So, should you buy a foreclosed home in Tennessee? Buying a foreclosure might be a great way to purchase a home, though the process is complicated and may take a long time. You should understand the pros and cons and speak to your professional real estate agent before considering buying a foreclosed home.
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