Buying a Foreclosed Home: Opportunity or Aggravation?
June 18, 2008 -
It’s the troubling side effect of a slumping economy. All over Maine and the rest of the nation, the number of homes and other properties in foreclosure is steadily increasing, leaving banks and other lending institutions with properties they are looking to sell.
This can create an opportunity for the savvy boomer in the market, with so many foreclosures and a glut of other properties for sale, the advantage is with the buyer.
While stories of foreclosure bargains can be rare, the fact is there are many properties out there. The National Association of Realtors estimates that over one million homes will end up in foreclosure in the next several years.
Foreclosures can happen for a number of reasons: for nonpayment of either federal or state income or local property taxes; a defaulted mortgage; or in probate after a homeowner passes away.
In most cases, even after foreclosure, a lender will work to settle the case to recoup its money before resorting to an auction.
And that’s an important fact to remember. Just because a home is in foreclosure doesn’t mean that it’s a bargain. Banks and other lenders will work to make sure they get their money back on a defaulted mortgage, so while there may be opportunities for discounted properties, it’s highly unlikely that lenders will be willing to part with properties for a drastically reduced price.
“This whole business of there being steals out there is really a myth,” said John Bernier of Home Sellers of Maine. “People come to us with this false impression that they’re going to get something for nothing. You can get a deal, you just can’t get a steal.”
So, in other words, ignore the television ads that claim that you can buy homes for pennies on the dollar. That’s just not going to happen, but if you do your homework and are willing and able to assume some risks, you can sometimes get a good deal on foreclosed properties.
Bernier said when a bank forecloses on a mortgage, it will assign the listing to a local broker in an attempt to sell the property. Unlike a traditional listing, where there is room for negotiation between the buyer and a seller, the price is generally firm when it comes to a foreclosed property. “The terms (of the sale) usually have to do with a combination of what’s owed on the property and the market value,” Bernier said.
The desire to get market value even holds true in cases where the lender is the federal government, though there is more of an opportunity for some people to get a better deal.
Kristine Foye, a spokeswoman with the U.S. Department of Housing and Urban Development, said the agency has what it calls a “Good Neighbor” program where a teacher, firefighter or police officer can buy a foreclosed home at 50 percent of the listing price. But the program is limited only to police, firefighters and teachers, Foye said. All other potential buyers would have to pay a price based on the market value of the home.
Bernier also cautions that generally, a foreclosure sale is done on the lender’s terms and in their time frame. “Sometimes, you have to be ready to close in 10 days,” Bernier said. “You really have to have all of your ducks in a row.”
When looking at foreclosed properties, buyers need to be extremely careful, since foreclosed homes are generally sold “as-is” and without the opportunity for a building inspection prior to the sale.
And, that’s where the trouble and expenses can really start to pile up. Foreclosed homes can be neglected and even abandoned properties with serious damage from flooding, mold or ice and snow damage that could require thousands of dollars to repair before the home is habitable again. Bernier said that anyone looking at a foreclosed property should factor in the cost of any remodeling or repair into the what they will pay for the property to know what their true cost will be.
He added that people with experience in home construction, who can do most of the necessary work themselves, could certainly save money by buying a foreclosed property and fixing it up. “If you’re a contractor, you can get a very good deal,” Bernier said.
Knowledge is key when looking at foreclosed properties, especially to buyers looking to avoid being saddled with a “money pit” of a home that costs them more in repairs than they can afford, Bernier said. “You better know what you’re doing or hire an agent who knows what they’re doing,” he said.
By Mike Higgins, www.keepmecurrent.com, June 16, 2008
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