Before the Great Recession of the not-so-distant past beginning in 2008, finding a foreclosure property in hopes to purchase a home at a lower price was very difficult. The wave of foreclosures that the recession brought on changed the painstaking process of searching for them. Today the process for finding foreclosed homes is nearly the same as searching traditional MLS home listings online.
A property goes into pre-foreclosure when a mortgage company notifies the borrower that they are in default on their loan. Default means that monthly payments have been missed and usually when there is more than one missed payment. This notice is to help give the borrower a chance to get up-to-date with their payments or make arrangements to avoid having a foreclosure on their credit report. If a homeowner chooses to sell the property to avoid actual foreclosure they are usually ready to negotiate on the sale price of the home.
To find homes in pre-foreclosure you can search sites that specialize in this or you can have an experienced local agent help you out. They will also be listed in the county and city courthouses.
A short sale occurs when a homeowner puts the house up for sale at a smaller price than is owed on the mortgage. They do this with the lender’s permission, this does not always mean that a borrower is at default in their mortgage. Borrowers do need to prove hardship and an inability to continue to make mortgage payments that will likely result in default. In most short sales the property is currently worth less than the borrower owes on the mortgage which is referred to as being underwater.
To qualify as a short sale, the lender must agree to sell the property “short” of what is owed on the current mortgage. These homes are usually listed as a short sale with the words – pending bank approval. The bank has the final decision on an acceptable sale offer.
Buying a short sale home is very much the same as purchasing through a traditional sale, except that the language in the paperwork could be more formal and difficult to navigate, as well as it can take a little bit longer waiting on the bank to accept the offer. In some cases a bank could take months to accept an offer. You can search for short-sale homes the same way you would other homes online. It is always good to have an experienced agent in your corner to help you navigate the paperwork terms.
This type of sale occurs after the lender made initial notification of loan default and gave a grace period to the borrower to make arrangements to pay the loan and arrangements were not made. The auction is designed to help a lender make some money quickly to help take care of the default.
Auctions typically occur at the courthouse and are managed by local law enforcement. The property goes to the highest bidder. Notice of auctions can be found in the newspaper and online by searching sheriff sale auctions.
Properties that did not sell at auction go into the lending bank’s sole ownership. These are referred to as REO or real estate owned. They are usually managed by the REO department of that bank. RealtyTrak is an online source where you can look up these properties by zip code or city. You can, of course, also ask your real estate agent to help you find these types of properties. In many cases a bank will sell these homes at a lower than market value price to get them off their books.
In the case of an REO property it is a good idea to come to the bank with a low offer to start the negotiations. If a bank has a large inventory of these properties they will be more willing to negotiate a price. The longer the bank has had a property the more they will be willing to let it go. A starting offer around 20% below current market value is a reasonable place to start.
These are homes that had loans purchased by the FHA: Federal Housing Association or the VA: Department of Veterans Affairs. When government-owned properties are foreclosed they are repossessed and sold by brokers working for the government.
Government registered brokers must be contacted to make a purchase on a government owned property. Buyers can search for these homes on the U.S. Department of Housing and Urban Development, or HUD, website.
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