|
Q: |
Are
foreclosures an option? |
|
A: |
A foreclosure
property is a home that has been repossessed by the
lender because the owners failed to pay the mortgage.
Thousands of homes end up in foreclosure every year.
Economic conditions affect the number of foreclosures,
too. Many people lose their homes due to job loss,
credit problems or unexpected expenses.
It is wise to be cautious when considering a
foreclosure. Many experts, in fact, advise inexperienced
buyers to hire an expert to take them through the
process. It is important to have the house thoroughly
inspected and to be sure that any liens, undisclosed
mortgages or court judgements are cleared or at least
disclosed. |
|
|
Q: |
What are
problems with buying foreclosures? |
|
A: |
Buying
directly at a legal foreclosure sale is risky and
dangerous. It is strictly caveat emptor ("Let the buyer
beware").
The process has many disadvantages. There is no
financing; you need cash and lots of it. The title needs
to be checked before the purchase or the buyer could buy
a seriously deficient title.The property's condition is
not well known and an interior inspection of the
property may not be possible before the sale, says
Wiedemer.
In addition, only estate (probate) and foreclosure
sales are exempt from some states' disclosure laws. In
both cases, the law protects the seller (usually an heir
or financial institution) who has recently acquired the
property through adverse circumstances and may have
little or no direct information about it.
|
|
|
Q: |
What types of
foreclosure are there? |
|
A: |
Judicial
foreclosure action is a proceeding in which a mortgagee,
a trustee or another lienholder on property requests a
court-supervised sale of the property to cover the
unpaid balance of a delinquent debt.
Nonjudicial foreclosure is the process of selling
real property under a power of sale in a mortgage or
deed of trust that is in default. In such a foreclosure,
however, the lender is unable to obtain a deficiency
judgment, which makes some title insurance companies
reluctant to issue a policy. |
|
|
Q: |
What happens
at a trustee sale? |
|
A: |
Trustee sales
are advertised in advance and require an all-cash bid.
The sale is usually conducted by a sheriff, a constable
or lawyer acting as trustee. This kind of sale, which
usually attracts savvy investors, is not for the novice.
In a trustee sale, the lender who holds the first
loan on the property starts the bidding at the amount of
the loan being foreclosed. Successful bidders receive a
trustee's deed. |
|
|
Q: |
How do you get
financing for a foreclosure? |
|
A: |
One reason
there are few bidders at foreclosure sales is that it is
next to impossible to get financing for such a property.
You generally need to show up with cash and lots of it,
or a line of credit with your bank upon which you can
draw cashier's checks. |
|
|
Q: |
How do you
find government-repossessed homes? |
|
A: |
The U.S.
Department of Housing and Urban Development acquires
properties from lenders who foreclose on mortgages
insured by HUD. These properties are available for sale
to both homeowner-occupants and investors.
You can only purchase HUD-owned properties through a
licensed real estate broker. HUD will pay the broker's
commission up to 6 percent of the sales price.
Down payments vary depending on whether the property
is eligible for FHA insurance. If not, payments range
from the conventional market's 5 to 20 percent.
One caution. HUD homes are sold "as is," meaning
limited repairs have been made made but no structural or
mechanical warranties are implied. |
|
|
Q: |
Can I get a
HUD home for as little as $100 down? |
|
A: |
If you are
strapped for cash and looking for a bargain, you may be
able to buy a foreclosure property acquired by the U.S.
Department of Housing and Urban Development for as
little as $100 down.
With HUD foreclosures, down payments vary depending
on whether the property is eligible for FHA insurance.
If not, payments range from 5 to 20 percent. But when
the property is FHA-insured, the down payment can go
much lower.
Each offer must be accompanied by an "earnest money"
deposit equal to 5 percent of the bid price, not to
exceed $2,000 but not less than $500.
The U.S. Department of Veterans Affairs also offers
foreclosure properties which can be purchased directly
from the VA often well below market value and with a
down payment amount as low as 2 percent for
owner-occupants. Investors may be required to pay up to
10 percent of the purchase price as a down payment. This
is because the VA guarantees home loans and often ends
up owning the property if the veteran defaults.
If you are interested in purchasing a VA foreclosure,
call 1-800-827-1000 to request a current listing. About
100 new properties are listed every two weeks.
You should be aware that foreclosure properties are
sold "as is," meaning limited repairs have been made but
no structural or mechanical warranties are implied.
|
|
|
Q: |
Where can you
find foreclosures? |
|
A: |
In most
states, a foreclosure notice must be published in the
legal notices section of a local newspaper where the
property is located or in the nearest city. Also,
foreclosure notices are usually posted on the property
itself and somewhere in the city where the sale is to
take place.
When a homeowner is late on three payments, the bank
will record a notice of default against the property.
When the owner fails to pay up, a trustee sale is held,
and the property is sold to the highest bidder. The
financial institution that has initiated foreclosure
proceedings usually will set the bid price at the loan
amount.
Despite these seemingly straightforward rules, buying
foreclosures is not easy as it may sound. Sophisticated
investors use the technique so novices may find
themselves among stiff competition.
Resources:
* "The Smart Money Guide to Bargain Homes, How to Find
and Buy Foreclosures," James I. Wiedemer, Dearborn
Financial Publishing, Chicago; 1994.
* "Real Estate Principles," Charles O. Stapleton III,
Thomas Moran and Martha R. Williams, Dearborn Financial
Publishing, Chicago; 1994.
* "Real Estate Investing From A to Z," William H. Pivar,
Probus Publishing, Chicago, 1993. |
|
|
Q: |
Where can you
find foreclosed HUD homes? |
|
A: |
The U.S.
Department of Housing and Urban Development acquires
properties from lenders who foreclose on mortgages
insured by HUD. These properties are available for sale
to both homeowner-occupants and investors.
You can only buy HUD-owned properties through a
licensed real estate broker, whose commission will be
paid by HUD.
Down payments vary depending on whether the property
is eligible for FHA insurance. If not, payments range 5
to 20 percent. When the property is FHA-insured, the
down payment can go much lower. Each accepted offer must
be accompanied by an "earnest money" deposit equal to 5
percent of the bid price not to exceed $2,000, but not
less than $500.
You should be aware that HUD homes are sold "as is,"
meaning limited repairs have been made but no structural
or mechanical warranties are implied. |
|
|
Q: |
Do you have to
buy HUD homes through a realty agent? |
|
A: |
You can only
purchase a U.S. Department of Housing and Urban
Development property through a licensed real estate
broker. HUD will pay the broker's commission up to 6
percent of the sales price. |
|
|
Q: |
What about
buying a foreclosure "as is"? |
|
A: |
Buying a
foreclosure property can be risky, especially for the
novice. Usually, you buy a foreclosure property as is,
which means there is no warranty implied for the
condition of the property (in other words, you can't go
back to the seller for repairs). The condition of
foreclosure properties is usually not known because an
inspection of the interior of the house is not possible
before the sale.
In addition, there may be problems with the title,
though that is something you can check out before the
purchase. |
|
|
Q: |
Where do I
learn about HUD foreclosures? |
|
A: |
One good
source is their Web page http://www.hud.gov
|
|
