Snippet from Florida Association of Realtors:
Read the whole story:http://www.floridarealtors.org/NewsAndEvents/n4-081407.cfm
Foreclosures: for novices, it’s a crapshoot
NORTH PALM BEACH, Fla. – Aug. 14, 2007 – The allure of foreclosed properties to a would-be real estate investor is nearly irresistible: Buy valuable properties for pennies on the dollar with little or no risk of your own money, work when you feel like it, and grow rich.
It's important to understand:
There are three distinct phases of foreclosures, each with its own advantages and each fraught with peril:
Preforeclosure: The time between when the homeowner has stopped making payments and when the land is actually put up for sale at auction. Investors take this opportunity to deal directly with the homeowner.
Auction: When the courts seize the property from the homeowner and sell it to the highest bidder. The county sheriff or a trustee handles this process, depending on the state.
REO: If the property fails to sell at auction, or if the lender ends up as the highest bidder, the home becomes REO, or “real estate owned” by the bank. Banks then try to sell these REO properties on the open market, often through a real estate agent or third-party marketing company.Often these homes are sold to buyers who don’t even know they are buying a foreclosure, and go through the entire process as they would with any other home.
Going once . . .The typical foreclosure is literally bought on the county courthouse steps during a sheriff’s auction or a trustee’s sale. These auctions are typically held on a weekday morning, and bidders must come to the sale armed with information and flush with cash or its equivalent. Plastic, personal checks and IOUs are almost universally shunned at auction and, depending on where you live, investors usually must make a sizable deposit or pay the entire sum on the spot.
Details vary widely by state, but as a rule, prospective buyers are not allowed inside the house before bidding begins. This is a frightening concept for many buyers, who must lay down thousands of dollars in cash up front without knowing anything about the home beyond what is available through basic public records searches and a curbside appraisal.The house could be infested with termites, gutted to the rafters by previous residents or filled with lead paint or asbestos, and a buyer wouldn’t know until after the sale is final. This as-is aspect of auctions is only part of what can make foreclosures so perilous for beginning buyers.
Another is that these homes can never be guaranteed to come with a clear title.“You can never be absolutely sure you are going to be buying a house with a clean title in any sale, but foreclosures are particularly problematic,” says John Mixon, law alumni professor at University of Houston Law Center.During a typical foreclosure auction, the homes that will be sold are listed in the legal advertising section of the county’s newspaper of record at least a week before the sale. And while you may have a week to research the records and history for each house scheduled for auction, many homeowners settle their dispute with the bank at the 11th hour, halting the sale. This means any time, effort or expense you invested to research the home is lost.
Given these constraints, obtaining title insurance is out of the question.But choosing to forgo title research could end up being infinitely more costly. “There are so many regulations, so many procedures that if you leave out a step, a previous owner may come out of the woodworks and show this to the court and you lose everything you put into the deal,” Reed says.
Not all hopelessBut all that doesn’t mean every auction deal is hopelessly risky.“Very few institutional foreclosures are defectively handled,” Mixon says, so the best bet is to stick to homes that were foreclosed by reputable lenders, but only if they were the first lien holder, usually through a first mortgage. If the deal was done properly on the front end, complete with title insurance, there’s less likelihood that a skeleton is lurking, and about a 90-percent chance of getting a good title.
Government auctions, Another variation on the auction is buying properties foreclosed by a government agency, such as the Department of Housing and Urban Development or the Veterans Administration.These auctions are typically conducted online through a marketing company. Buyers are allowed to tour the homes in advance, conduct inspections and can often get title insurance.While these auctions are appealing, the availability of homes is limited and the small stock is often bid on by several buyers, making it a very competitive market with prices discounted only slightly, if at all, off current market value.
Tabletop negotiations---One purchase method advocated by numerous seminars and real estate gurus is to find property owners delinquent in their payments through legal ads or online services that search public records and courthouse documents. You could then approach the owner directly to negotiate a private deal. Advocates of this method call it “buying equity.” Essentially, investors pay the owner a fee and then take over the existing debt and the home. This keeps protects the homeowner’s credit report from the black mark of foreclosure. Buying equity this way is difficult if a seller’s market exists because the owner could just as easily sell the home and usually pocket a greater amount in appreciation than an investor would be willing to pay.“Some people call this stealing property,” Reed says.
Sale mentality---Despite all the potential pitfalls, interest in foreclosures runs high. Part of the attraction comes from the same motivation that makes bargain shopping trendy, says C.J. Gehlke, editorial director of “The Resource,” a monthly newsletter published by REO Nationwide.“What you find is a frenzy similar to what you get at a department store sale,” she says. “When you buy a house at foreclosure, it has the same mystique. You can brag to people at a cocktail party about how much you saved.”
Read the whole story:http://www.floridarealtors.org/NewsAndEvents/n4-081407.cfm
No comments:
Post a Comment