Thousands of homes will become available for sale through foreclosure this year —or any year. And while it’s a hardship for the families who lose their homes, it can be an opportunity for others to buy a house at a bargain. It’s sort of the cycle of life.
When a lender forecloses, it’s no reflection on the home. It just means the previous owner couldn’t make the mortgage payments. There are two main junctures at which you can purchase a foreclosed property: on the courthouse steps when it is being auctioned off to satisfy the debt owed to the mortgage company. Or after that same bank has bought the property back itself in order to recoup its investment. This second is known as a bank-owned or “real estate owned” property and is actually more common.
You hear the phrase “auctioned on the courthouse steps” frequently, but the truth is, not all courthouses have steps and not all of these auctions are conducted at courthouses! Some states hire professional auctioneers and ask that the auctions be held at the auctioneer’s office. Others allow them to be held on the premises of the property they’re selling. Other options: some auctions are run by the local sheriff’s office and others are handled by attorneys. I’m going to refer to ALL of these as courthouse-steps scenarios.
If you are hoping to buy a property in a courthouse steps scenario, where the bank is repossessing the home from the mortgagees, it’s a good idea to attend several auctions and get a feel for how they work before you actually bid. Keep in mind that many –even the majority—of these auctions are canceled at the last minute when the homeowners somehow work out a deal with the bank to stay in their home. So try to re-check listings before heading to the auction site. You should also know, that even for a courthouse-steps scenario, you are allowed to hire a real estate agent to represent you. Just be sure to choose one with experience in this unique subset of the realty world.
Typically you cannot get inside to see the property when buying from the courthouse steps, but here is one helpful hint: if the property changed hands in recent years, there may still be photos and details archived in the Multiple Listing Service that real estate agents have access to or on a real estate website like Zillow. So check.
Now let’s talk about bank-owned properties, where the bank has already bought the foreclosed house itself. You should know that banks are not required to disclose defects in the property in the same detail that regular sellers are because they have not lived in the home. It’s important to hire an expert home inspector to look for expensive flaws.
Nearly all bank-owned properties are listed on an as-is basis. That means the bank is stating it will not repair defects to the property. If you find flaws, you should lower your offer accordingly. Alternatively, if the property has been sitting around for awhile, even though the bank has listed it “as is,” the bank may be willing to pay for repairs in order to get the home off its books.
It’s best to approach any home purchase with your own pre-approved financing in place, but since you are dealing with a bank, it is quite possible that they will want you to get pre-approved by their own mortgage department as well. Some banks selling properties will actually offer to provide you a mortgage for a property. It’s a fine idea, as long as you have shopped around elsewhere and know you are getting a good rate and fees.
Industry experts say bank-owned properties are already marked down 20% to 30% compared to other homes in the neighborhood, so you may not have much luck making a lowball offer. However, if the home has been on the market a long time, your chances are better of talking the price down. Still, when Zillow analyzed the closing price of regular homes versus foreclosed homes, it found that you can get a discount of 7 to 27 percent on a foreclosed home. And when you’re talking about big numbers, those percentages are real money!
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