Foreclosures

Opportunity or Risk? Everything You Need to Know About Buying Foreclosed Homes

Are foreclosures an option?

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 recommend that inexperienced buyers work with a professional throughout the process. Always have the home inspected thoroughly and ensure that any liens, undisclosed mortgages, or court judgments are cleared—or at least fully disclosed.

Can I get a HUD home for as little as $100 down?

Yes, in some cases. You may be able to purchase a foreclosure property acquired by the U.S. Department of Housing and Urban Development (HUD) for as little as $100 down, provided the property is FHA-insured.

Down payments on HUD properties vary:

• If FHA-insured: as low as $100 down.
• If not FHA-insured: typically 5% to 20%.

Each offer must be accompanied by an earnest money deposit equal to 5% of the bid price (minimum $500, maximum $2,000).

The VA (U.S. Department of Veterans Affairs) also offers foreclosed properties to owner-occupants at potentially below-market rates. Down payments are often as low as 2% for owner-occupants, though investors may be required to put down more—up to 10%.

Resource:
Visit foreclosurefreesearch.com or call (800) 827-1000 for VA property listings.

Do you have to buy HUD homes through a realty agent?

Yes. HUD homes must be purchased through a licensed real estate broker, and HUD will pay the broker’s commission up to 6% of the sale price.

How do you find government-repossessed homes?

HUD acquires properties from lenders who foreclose on mortgages insured by HUD. These homes are then listed for sale to both homeowners and investors. They must be purchased through a licensed broker.

Note: HUD homes are sold “as is”—limited repairs may be made, but there are no warranties on structural or mechanical issues.

How do you get financing for a foreclosure?

It can be difficult. Most foreclosure sales, especially trustee sales, require all-cash offers or cashier’s checks drawn from a bank line of credit. This is one reason fewer bidders participate—traditional mortgage financing is rarely available in these situations.

How does a home go into foreclosure?

Foreclosure proceedings typically begin after a borrower has missed three mortgage payments. The lender records a notice of default against the property. If the debt is not repaid, the lender will proceed with a trustee sale to recoup the loss.

What happens at a trustee sale?

Trustee sales are advertised in advance and require full payment in cash at the time of sale. They are typically conducted by a sheriff, constable, or a trustee attorney. These sales attract experienced investors, and are not recommended for first-time buyers.

The opening bid is usually the amount of the outstanding loan balance, and the winning bidder receives a trustee’s deed.

What types of foreclosure are there?

• Judicial Foreclosure
  A court-supervised process in which a lienholder requests the sale of the property to satisfy unpaid debts.
• Nonjudicial Foreclosure
  A faster process in which the lender sells the property under the “power of sale” clause in the deed of trust. In these cases, lenders cannot pursue a deficiency judgment, which sometimes causes title insurance companies to hesitate.

Where can you find foreclosed HUD homes?

Foreclosure properties insured by HUD are listed through licensed brokers and are available to both homebuyers and investors. Visit hudhomestore.gov or work with a real estate agent authorized to make HUD offers.

Down payment amounts:

• FHA-insured: often lower down payments.
• Not FHA-insured: 5% to 20%.

HUD homes are sold as-is and must include an earnest money deposit (minimum $500, maximum $2,000).

Where can you find foreclosures in general?

Foreclosure notices are typically:

• Published in the legal section of local newspapers.
• Posted on the property itself.
• Listed at the courthouse or city hall where the sale will occur.

Once a property enters foreclosure, it’s auctioned off, often to the highest bidder. However, be prepared for competition from seasoned investors who specialize in these sales.

Resources for Buying Foreclosures:

• The Smart Money Guide to Bargain Homes: How to Find and Buy Foreclosures
  James I. Wiedemer, Dearborn Financial Publishing, 1994
• Real Estate Principles
  Stapleton, Moran & Williams, Dearborn Financial Publishing, 2001
• Real Estate Investing From A to Z
  William H. Pivar, McGraw-Hill, 2003