Buying a foreclosed house????
 

Does anyone have any experience in buying a foreclosure? We are looking at one that will be going to auction next month but it might have a $4000 lien against it. I haven't had a title search done yet to find out for sure but it looks that way. Anyway, if we were to buy it at auction and it has a lien on it does that mean we would have to pay off the lien when we take possession?
Any other advice and comments on buying foreclosures would be greatly appreciated. It seems all I find online are sites trying to sell listings of forclosures, I can't find any helpful information on the process of it.

I don't know how it varies from state to state. around here (NY) to be safe what some do is go to the person being forclosed on and offer to by it before it reaches the auction block. that way you have time to get a title on the property and the seller has a chance at keeping some of the money instead of losing it all to red tape. I just wouldn't have the heart to walk up to someone like that.

We foreclosed on a home that we had sold and held a second mortgage on. We were liable for any liens that they had put against the house, fortunately for us besides the 1st mortgage they didn't have any. Another issue was that in our state when a house is foreclosed upon, the previous owner has a certain period of time that they can come back and purchase the house for the forclosure amount, plus any taxes that had been paid. So it makes it diffficult to sell the house for that period of time. I think it was one or two years here, I don't really remember, as we rented the house for about 10 years after foreclosing on it, and then sold it.

Repossession by the former owner doesn't sound very likely, but there are cases of it happening when the people were able to get enough money from relatives to purchase a home back - and whoever had purchased it at foreclosure was out any interest on their money or improvements they had done on the property.
Dawn

It really depends on the auction selling price. The first paid from the proceeds are taxes and repo expenses. Second is the first mortgage. Third is any remaining liens. If all liens are covered by the amount the auction brings, the property will be yours clear. If the proceeds do not pay the lien, you will be liable. In most states, the time for redemption by the former owner is 2 years.

I just spent 2 hours talking to a real estate attorney about this last Thursday.

Check your state laws on foreclosed property, even county laws because sometimes the county is different (more restrictive) that the state. Here in Ohio (Franklin county) foreclosed homes are sold at sheriffs auctions. The foreclosed home has to go through the court proceedings (usually trashed and empty for quite a while) then get appraised for fair market value. The appraisal is a roadside appraisal because the appraiser is not allowed into the house. Then the auction starting bid is a minimum of 2/3 of the appraised value. You have to pay a minimum amount down at the time of the sale. Once the property is auctioned off the owner has 2 years to buy back the house, provided they reimburse the purchaser for all costs but nothing more.

If the house is being sold prior to the court proceedings the laws are different and you should check with the county real estate appraiser to see if any other liens exist.

i purchased a house that had been foreclosed on and the bank sold it for less than what had been owed. i rehab'd it and made quite a bit of money when i sold it 2 years later.

If you can get it that way then congrats to you. All of the homes I've tried to buy that way ended up being sold to flippers who were on the ins with the banks repo agents.

In Indiana, it depends on how the house is sold.

If it is sold by the bank, who owns the title, they will typically either pay the liens themselves, or charge you for them. They will only pay the liens if they are small, usually. They do not pay large second mortgages, in my understanding. They will typically pay tax and water liens.

If it is sold for tax, sewer or water liens....it is my understanding that ALL liens are off. This is why the mortgage holder usually buys the house back at auction.

I also believe, depending on the area you live in, that there is some pretty shady stuff that goes on inside the bank before the house is sold. My sister found a $200,000 house that the bank owned. The bank wanted $96,000 for it. She made a deal with the bank manager, and said she would be in the next day to sign the loan and purchase agreements. The next morning, when she went in....the house had already sold to a 'house flipper'...one of the most crooked guys in the state.

I think there are real deals out there...but you have to look, and you have to be diligent in your search...and a little luck never hurt.

Where are you, and what kind of place are you looking for? Can you tell us a little more about your situation???????

clove

Happy@home, it depends whether or not you will be responsible for paying off the lien, as described in a post above.

But even with a $4000 lien you may still get a sweetheart of a deal and make a great deal of profit if you (legally) flip it.

What kind of auction is important too. If it's a tax auction, all liens and back taxes may be eliminated by the county.

Thanks, I'll be checking into state and county law and see if I can figure out how a lien would be handled. I called the law firm handling the foreclosure and the bank and they both told me that until the auction the person who is being foreclosed on can sell it to us, that would be the best option for us if he is willing to do it. It's a great looking property, 10 acres of land,nearly 7 more than we now have, on a secluded road, a neighbor across the road up a long driveway but no homes right next door which we have now. Hopefully no crazy neighbors like we have now too. I just looked at the outside of the house and it looks good, needs some minor repair, a railing, a bit of lattice on the porch but the roof, foundation, siding all looks good. Of course I don't know about the inside or the septic or well. If we can get it at or near the price the bank is looking for it would be a fantastic buy, the fair market value according to the county is 169,000. The bank is owed 79,500 and I think that is the beginning price at auction. I'm still trying to figure it all out. It wouldn't be for a flip, it would be our home, hopefully the last we buy.

If someone can't afford to make their house payments, they can't afford to fix what's broke. You really need to have cash in hand if it needs a new furnace, etc.
Sounds like a great buy. Good luck to you.

Foreclosure procedures vary from state to state and your location is unavailable to anyone that could really help. It's always smart to learn the details of title condition. In many states foreclosing the first lien wipes out all other claims except federal & tax liens. Anyone has access to the applicable public records which should reveal liens and clouds already of record. Due dilligence is called for. Good luck and let us hear how it comes out....Glen

If the assessed value is 169K the actual market value could even be higher. Which state are you in? It may help us to know that .... there are several real estate professionals on this board who may be able to assist you with data.

Our first purchase was a foreclosure auction.

We were very happy with the purchase. Our problem turned out to be with our co-signer.

:)

Sorry I thought I put it in my last post but I guess I forgot. We're in Wisconsin. I think the actual market price would be higher (if there are no major problems with the house) judging by what homes in the area are selling for.

I used to feel like kwagner - I wouldn't have the heart to go up to the owners and ask if they'd sell. It felt like taking advantage of their hard times.

BUT then I found myself once in a situation where I thought I wouldn't be able to make my mortgage payments and I thought I might be facing a foreclosure on down the road. Let me tell you from my own experience, the home owner will probably be thrilled to sell you the home!

If the house is auctioned off, their credit is ruined and they lose all the equity they have in the house. If they sell it to you for what they owe on it, they still lose their equity but their credit is intact.

Some home owners are stubborn and may try to hang on to the end but most folks will want to at least try to keep a foreclosure off their credit history.

Definitely get a title search done and you might also have an inspection done just so there aren't any surprises. Wolf Mom made a good point - if someone can't afford mortgage payments they're not keeping up with maintenance.

However if the place is really worth 169K you could get a loan for 90K, pay the owners 80K and still have 10K to do any fixing, remodeling, etc. you'd like to do. Plus you'd have 80K equity in the place. That's a sweet deal no matter how you slice it (except for the being in debt part).

I say go for it!!!!

You could approach the home owner, which I would do in the most respectful manner I could. I bet those folks are scared, and feeling desperate. There are reasons they are near foreclosure, and they could have alot of emotional pain and suffering.

I would also work with the bank to learn what you could.

I do think you are going to have some hurdles, so be prepared. For instance, if the bank requires it, how are you going to have an inspection and appraisal done?

Something to think about.
Clove

Dont forget that you might have to sweeten the deal for the homeowner. Might have to offer $10,000 profit over the mortgage amount to make it happen. I would start low at first, and work up.
Clove

It sounds to me like it has TWO lies on it on for $4000 and one for $79,500
There may be two eays to deal with the $4000 you could pay it off.Boom your clear and its not a worry. Or you could let it sit there. And not worry about it. in some states no one ever needs to worry about it agin . Likely if you go to sell the house the new buyes would want it cleared but you never know and if you are going to live there 10 ,20 or more years everyone might forget about it.
The bank isnt real likely to forget thier $79500 I bet its them that are forcing the auction.
So go see the current owners and see waht you can do. right now they are about to lose it without a dime ,what you are doing is offereng to buy their equity .
Lets see where it goes.
$169,000 value
-79,500 to the bank
-$4000 in a liien you you know of
___________
$85,500 apparent equity
-$42,250 thats a 25% equity position in the final home.It makes credit
________ cheeper and loans easyer to get
$43,250 the amount you have to effect repairs and deal with the owner to pay for his equity
any Idea what you can do the repairs for?
My starting offer to the current owner would be about $10,000 its a nice round number that sounds good. Id stand there in front of him with that much cash in my hand in $10 or $20 dollar bills and make him the offer. DONT GIVE HIM THE CASH!
Id make it contingent on his paying any liens that you dont know about, now If he fesses up to any dont get excited obviously you can deal with anything up to about$40,000 but rember you have $43,250 to effect repairs pay more leins with AND buy his equity ,sure if the repairs are few and small you can up the equity to him its all negotiation . If he wants way more you can point out he is about to get nothing and you can show him these figures. You might go so far as say you will give him the $43.250 in a escrow account and that he can have whats left over after mutually agreeable contracters affect repairs and ALL liens are paid.

I wouldn't buy a Bank forclosed home unless you have a lot of time and money to invest. Think about it, if a house is worth more than the loans on it the previous owner would have sold it. Even if they could have sold it for just what they owe and take a hit on their equity it is better than letting it go to foreclosure. Houses go to foreclosure when the owners don't think it is worth fixing up, and the banks want what is owed on it which is usually more than the hosue is worth in as-is condition. The sad reality is that properties that are really a good bargain never get advertised, they are sold to insiders. There are exceptions of course but it takes luck and skill to find them.

One thing I forgot to mention: You can put ALOT of time and energy into this deal, and it could fall thru at any minute, for any reason.

My sister once looked at a foreclosure, $135,000 was owed, and the house was worth $169,000, give or take. The bank carried about $80,000 on the mortgage, and a second mortgage holder was owed about $55,000. My sister spend weeks and weeks dealing with the bank, first offering $112,000, and eventually uping her bid to $121,000. The bank would not budge an inch on their price, yet sold the house to someone else for $125,000 two weeks later. (My sister would have paid the $125,000 and told them so....they wouldn't budge.)

****BTW, the liens will need to be paid IMHO in order to get title insurance, and a loan from the bank.

Clove

This is not necessarily the case - although it IS a good point and the OP would do well to keep it in mind.

Most homeowners don't like doing "For Sale By Owner" because they are intimidated by the paperwork and usually don't know what the law requires of them to have a legal sale of their home. Thus, in most cases the homeowners need to sell the house for at least 107% of what they owe (7% to cover realtors fees).

The homeowners may be worried about other fees, too, such as attorney's fees, points, and all that. Plus as someone else pointed out, they'll need cash to put down on a place to rent, and utilities in their new home.

Sometimes when folks get in over their heads they become overwhelmed and paralyzed, and they fail to take any action at all.

I've observed a few of these attempts to purchase and even a courthouse steps auction and it is a LOT of work for a small chance at being winning bidder. BUT, if it's what's right and affordable for you, go for it!

Would love to hear the step-by-step that some of you have taken to purchase a foreclosure.

Here's one that I looked at last weekend. Good looking piece of property, has possibilities. A little close to hog farms for my taste. There is some good info on the Southampton county web site.
http://www.resales.usda.gov/FSA/fsap...5&mapname=VA_E

clovis, the bank already knew who they were going to sell the house too, and it wasn't your sister. We had that problem with the house next door. Offered the repo company way more than the house was worth but still ended up being a couple thousand more than they eventually got for it. The repo company was mad at us for mowing the yard so crack-heads wouldn't know the place was vacant.

Thanks for all the opinions-advice-encouragement. I talked to the guy today, he is still trying to avoid foreclosure but I gave him our contact information and told him we would be interested in buying if things don't work out as he hopes. He seemed interested so we'll see what happens. We are approved with a loan so we'll have to have an inspection but if we get the place low enough we'll be ok hopefully things will work out for us.

Do you happen to know who the owner's mortgage is with???

If it is a smaller, hometown type bank, you should drop in and talk to the highest person in charge. They will not tell you anything about the owners situation. However,
you can pitch the deal to them, and let them know there is a buyer before the situation is a catastrophe. There is a slim chance, if it is locally owned, and the bank manager cares, they might try and work the deal for you by calling the owner themselves.

I would also keep in contact with the owner. Be extremely respectful, and always approach them with hat in hand. They are scared, confused, mad, sad, etc. Remind them that this is a way out, without a long drawn out foreclosure, they avoid having a foreclosure on their credit (which will affect them for 7 to 10 years), etc.

If it is a large corporation holding the mortgage, try your best to close the deal with the owner before foreclosure. You still might try to call them too, like you would the bank manager. (I recently read in the WSJ that mortgage companies were trying to work deals and put off foreclosures.) Don't think you will get anywhere, but worth a shot.

You might also show up at the auction, and literally be able to buy the house for $5 more than what is owed on it. My aunt bought 3 houses like that...literally for $5 more than owed to the bank. (There is also a huge chance that the big equity in the property will attract very spirited bidding.)

Also, under NO circumstances, will you rent to them after closing, if the deal goes thru. Not even for a few days. "I am sorry, but we can't" is your answer.

And CHANGE THE LOCKS THE DAY YOU GET THE PLACE.
Clove