Are foreclosures subject to a certain laws or regulations that I can study and learn about?
There is no single national law or regulations that you can study and learn about the legal actions related to foreclosures (distressed property sales) applicable in all states. Every state has its own rules and regulations. The basic principles may look to be the same however there are serious differences. Local foreclosure sales such as sheriff’s sales are subject to local laws and procedures.
The major difference is this: some states have judicial foreclosure system where a court decision is needed to sell the foreclosed property. Some states allow mortgages containing a power-of-sale clause where the lender may sell the property without judicial foreclosure procedures (trust deed foreclosure). In the latter, the trustor (borrower) conveys title to the trustee while maintaining the equitable owner status and the lender holds the note and trust deed.
How can I find real estate properties before foreclosure?
This stage includes pre-foreclosure actions. The estimated number of delinquencies is over three million per year. Simplified bankruptcy procedures increased the number of housing defaults.
Consider a lease-buy option agreement with the owner who is having financial problems.
Here are some sources to find to-be-foreclosed homes:
- Lenders (commercial banks, savings banks, credit unions, etc.)
- Local newspapers
- Lis Pendens at the courthouse of your county or city
- Bulletin boards
- Local magazines including PennySaver, Thrifty, and others
- Free real estate magazines placed in newsstands next to 7-Eleven and other convenience stores
- Internet listings
- Driving in neighborhoods
- Real estate agents
Remember: banks do not advertise pre-foreclosure properties that are embarrassment for them. You need to establish a relationship and credibility to obtain such listing.
Are REOs (Repos) bargain properties?
Yes. Most of them are not in top condition and require some repairs. That gives you a margin of bargaining with the lender. However, remember that lenders are tough negotiators. Their top priority is to recover their money and they may negotiate any price. Banks are not allowed to get into real estate business to make a profit. The bank can only make a claim for the amount of judgment.
Can I ask for a loan from the lender selling me a REO?
Sure, you can! The foreclosing lender would love to replace a non-paying borrower with a more credit worthy borrower. Most will agree to extend a loan to you to “facilitate” the operation.
How can I qualify for higher amount of loan?
Many banks and lenders apply a percentage to see how much of your income goes to your monthly payments or installments. Some lenders apply 28 percent to 42 percent of your monthly income. In other words, your monthly payments should not exceed these percentages.
One way to reduce the percentage of your monthly payments is restructure your debts. Here’s some help:
How can I get an updated list of government (VA and HUD) owned foreclosed property list?
Contact your local VA and HUD (FHA) office to get on their mailing list to receive such notifications. You will have a privileged status if you intend to stay in the property after the foreclosure sale. HUD and VA give priority to owner-occupants over real estate brokers and speculators.
Learn about home prices in the area that you are planning to buy a real estate property
To pay the right price for the foreclosure home you need to know what other homes of similar specifications are selling for in your area. Such list include prices of homes sold in the last six months.
Can I get a loan for a government foreclosure?
It is easier to get a mortgage loan for a bank foreclosure than obtaining a loan for a government foreclosure. The government agency selling the foreclosure property wants to recover its funds to finance the first-time home buyers or its regular conventional mortgage financing operations. Private sub prime lenders offer financing for foreclosure properties.
Can I get a loan even if I do not have an equity in my home?
Yes, there are some lenders that offer loans more than what you have in your equity in your home.
What if I cannot win the bid at a foreclosure auction (trustee sale)?
One opportunity that most people may forget is to make an offer to the winner. Everybody wants to make a quick profit on the spot. Make an offer and see what happens. You don’t have anything to lose!
What areas should I look for a foreclosure home?
To avoid future problems, focus on the following areas:
- High occupancy neighborhood (areas where you find no or few vacated homes).
- Improving regions (places where houses are well-maintained, no junk and old cars on the streets, etc.)
- More owners and fewer renters. Homeowners take better care of their homes resulting in appreciating values in the neighborhood.
- Close distance to schools, shopping centers, hospitals, and other community places.
- Areas that are not too close to freeways, airports, factories, industrial parks, and other commercial buildings.
- Active real estate market in the area.
- The ages of the homes are not too old.
- Areas where the homes in the area are not subject to rent control.
First mortgage, second mortgage: how can I determine the total amount owed?
All liens on the property must be paid off. Check if there is a second mortgage or any junior liens on the property. Junior lienors, if there is any, also have claims against the property.
Is equity sharing a good idea?
Some real estate consultants advise equity sharing with the troubled owners who are facing foreclosure. It seems attractive as a real estate investment. However becoming a partner with somebody having financial difficulties may result in losing the property that you are investing in. Partnering with an honest person may, of course, work well.
What is “right of redemption?”
In some states, the homeowner losing his or her home through foreclosure (dispossession) is allowed to recover the foreclosed property by paying back the amount that you paid plus the interest. If this is true in your state, do not make any improvements in the property until such redemption (buy-back) period is passed.
Is it true that I may not be able to inspect the property subject to auction?
Yes, you may not be allowed to inspect some properties sold at foreclosure auctions for tax delinquency. They are sold “as-is” and with no warranty.
Is there any government loan program to repair homes?
There are two insured home rehabilitation programs:
Section 203K loans: for rehabilitation of single family homes. You need to be an owner-occupant to benefit from this program. The amount of loan is arranged to cover the value of the property after the rehabilitation (completely refurbished price). So, your loan includes a margin for repairs.
FHA Title 1 loans: in an amount up to $25,000 for home improvement costs. You need to put up a matching amount of your own money or use your equity.
Conversions: what are they?
They are the apartments sold, fixed up, and then resold as condominiums.
How can I find a fixer upper home?
Concentrate on one area that you know better. Learn more and more about the area, then, get in touch with:
- Home inspectors
- Building contractors and subcontractors
- Painters
- Real estate agents
- Continually check the advertisements in the newspapers and local magazines.
Is there any relationship between a fixer-upper and foreclosure home?
Not necessarily. However, most foreclosure properties need some repair and fall under the category of fixer upper homes category.
What are the major concerns in buying a fixer upper property?
You need to decide whether the property is worth buying. Here are some major factors:
What is the extent of repairs?
- Can I do it myself or should I hire a handyman or a contractor?
- How long will this repair work take? You will be losing rent (if you are not occupying the property) and paying loan installments during repair period.
- Is there any structural problem that cannot be repaired? Don’t get involved with real estate having structural defects (severe foundation settling, instable soil) or irreparable or costly damages (led paint, asbestos, and radon gas problems)
- Low-cost fixer uppers may not be the best buy. Fixing up a higher-price fixer-upper house will not cost more but your profit margin may be higher.
Should I fix it myself?
Many fixerupper home investors want to fix their properties by themselves. This is a basic human nature to save money. Remember that you are in real estate buying-selling-leasing business, not in home repair business. Some people may assume that their time has zero cost. You may find another profitable investment house by spending your time to find another profitable, bargain property, arrange creative financing, and make more money. You are a dealmaker!
Can you tell me what I should always keep in mind when I buy foreclosures and fixer upper homes?
The best advice would be to create one checklist for buying foreclosure and fixer-upper properties … and a second checklist for home inspection.
How can I get legal documents?
You may want to get yourself familiar with the legal documents before entering into a legal contract or any other biding agreement.