| 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
judgments 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 |
