Are you considering buying a foreclosure property? Foreclosures are an attractive option for savvy home buyers looking to get more bang for their buck. However, they also come with their own risks, so it’s important to familiarize yourself with the process before taking the plunge. Keep reading for our Foreclosure – Q&A!
What Exactly is a Foreclosure?
Foreclosure refers to the legal process by which lenders take back a mortgaged property when the borrower fails to keep up with their payments. When this happens, the lender can repossess the home and put it up for sale. This type of sale is commonly called a ‘foreclosure sale’ or ‘trustee sale.’
How Can I Find Foreclosures in Texas?
The best way to find foreclosures in Texas is to research local listings online or through your real estate agent. You can also check county tax records or contact lenders directly.
How Are Foreclosures Priced?
Foreclosures are usually priced at market value or even slightly below market value, depending on the condition of the property and any necessary repairs that may be required. However, these prices may not always reflect the property’s actual worth, so it’s important to do your due diligence beforehand.
Who Serves as the Seller in a Foreclosure Sale?
The lender or bank will typically be the seller in a foreclosure sale. The lender will handle all paperwork related to the sale and take care of any title issues as needed.
What Should I Watch Out For When Buying a Foreclosed Property?
When purchasing a foreclosure property, it’s important to ensure that all disclosures are accurately and fully understood. Additionally, you should always inspect the home personally and ensure no liens or other issues with the title. Finally, you should be aware that foreclosures often require significant repairs or remodeling work and that you may need to factor those costs into your budget.
Hopefully, this Foreclosure – Q&A has given you some helpful information about buying foreclosure properties in Texas. Do your research thoroughly, and always consult a real estate professional with any questions.
Are foreclosures an option?
A: A foreclosure property is a home 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 foreclosure. Many experts advise inexperienced buyers to hire an expert to take them through the process. It is important to have the house thoroughly inspected and ensure that any liens, undisclosed mortgages, or court judgments are cleared or disclosed.
What are the problems with buying foreclosures?
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 must be checked before purchasing, 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, some state disclosure laws exempt only estate (probate) and foreclosure sales. 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.
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 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 cannot obtain a deficiency judgment, which makes some title insurance companies reluctant to issue a policy.
What happens at a trustee sale?
Trustee sales are advertised in advance and require an all-cash bid. The sale is usually conducted by a sheriff, a constable, or a 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.
How do you get financing for a foreclosure?
There are few bidders at foreclosure sales because getting financing for such a property is next to impossible. 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.
How do you find government-repossessed homes?
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, but no structural or mechanical warranties are implied.
Can I get a HUD home for as little as $100 down?
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 the down payment can go much lower when the property is FHA-insured.
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 that 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 want to purchase a VA foreclosure, call 1-800-827-1000 to request a current listing. About 100 new properties are listed every two weeks.
You should know that foreclosure properties are sold “as is,” meaning limited repairs have been made, but no structural or mechanical warranties are implied.
Where can you find foreclosures?
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 and somewhere in the city where the sale is to occur.
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, 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.
Where can you find foreclosed HUD homes?
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 from 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 know that HUD homes are sold “as is,” meaning limited repairs have been made, but no structural or mechanical warranties are implied.
Do you have to buy HUD homes through a realty agent?
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.
What about buying a foreclosure “as is”?
Buying a foreclosure property can be risky, especially for the novice. Usually, you buy a foreclosure property as is, meaning there is no warranty implied for the property’s condition (in other words, you can’t return to the seller for repairs). The condition of foreclosure properties is usually unknown because an inspection of the house’s interior is impossible before the sale.
In addition, there may be problems with the title, though that is something you can check out before the purchase.
Where do I learn about HUD foreclosures?
One good source is their Web page http://www.hud.gov
