This blog is set up for clients, associates, friends, relatives, and myself, to discuss real estate thoughts, questions and get some answers. This blog covers Valencia, Santa Clarita Valley, and Beyond!
Wednesday, December 21, 2011
Want To Buy A Foreclosure At Auction You Say??
I've had several clients attempt to buy a house at auction. It's a scary thing I hear. You have to have lots of cash. You're bidding against other people who have done this many times. You can't inspect the properties. You may have a cloud on Title when it closes.
Sounds like many scary things to me!
But, a few things to help you if you consider this route courtesy of House Logic:
Solutions to 6 common foreclosure auction challenges
1. Challenge: Getting reliable information about foreclosure sales. Many companies charge fees to send you lists of foreclosures that may not be current, or sell expensive foreclosure-buying “systems” that promise to teach you how to make millions in real estate.
Solution: Most foreclosure sales are still announced in local newspapers. And you can get accurate information about buying foreclosures from reliable book publishers:
2. Challenge: You can’t get inside the property before the auction to inspect it for structural problems and repairs. Many foreclosure auction properties are in bad shape because the owners couldn’t afford the upkeep. And sometimes angry home owners purposely damage the property to punish the foreclosing lender.
Solution: Walk around the home to check its exterior condition. If it’s vacant, look through the windows. Ask the neighbors what they know about the property. If it was a rental, check the inspection records on file with the local government.
You can safely assume there’s something wrong with any house sold at a foreclosure auction, so cover yourself by bidding no more than 70% of the home’s market value.
3. Challenge: You need to figure out the market value of the house to prepare your bid. Some foreclosure auction announcements include information about the size of the original mortgage. That’s not how much the house is worth or even what the owners owe now. If the current owners bought at the top of the market, their mortgage may be more than the home is worth in today’s market and they could owe even more if there’s a second mortgage on the house.
Solution: Commission your real estate agent to do a broker’s price opinion (BPO) on the home you want to bid on. The BPO will show you comparable sales, telling you what similar, nearby homes that weren’t foreclosure sales have recently sold for.
Bid well below those comparable sales to leave yourself room to pay for repairs and unexpected problems. Ask the agency that runs the auction how to find winning bid amounts from recent auctions. Use that information to guide your current bid, too. A look at local tax and assessment records will tell you more about previous and current auction properties, like square footage and lot size.
4. Challenge: You don’t know if there are liens on the home. Some auctions don’t give you clean title to the property, meaning liens from the federal government or other entities may not be removed during the foreclosure auction process. You’d have to pay off those liens if you won the property.
Solution: Focus your efforts on two or three homes in desirable locations. To find out about any liens, pay a real estate attorney to run a title search on each property and issue a commitment to insure the title after purchase. Ask how the policy treats liens filed between the time of the search and the time you close.
A less-expensive option: Hire an independent title search professional called an abstracter or an online company. Both search options should be under $200, title insurance costs vary by state.
5. Challenge: You have to pay cash and pay it quickly. Most auctions require bidders to come up with the full purchase price in cash within 30 days.
Solution: Don’t count on getting a mortgage that fast. Look for other sources of cash that make financial sense for you.
Tap retirement accounts, provided it makes sense for you from a tax perspective.
Work with other investors to fund a partnership to invest in foreclosed homes.
6. Challenge: You’re in love with a house that you’re aware is headed to foreclosure, but you’re afraid to bid on it at the foreclosure auction because you know nothing about the process.
Solution #1: Contact the owners and offer to purchase the home as a short sale. That’s where the bank agrees to let the owners sell for less than what they owe on the mortgage.
Solution #2: You may be able to buy the house after the foreclosure sale. Foreclosure sales are run by a government agency (often the sheriff), which collects the money from the highest bidder and gives it to the bank to pay off the mortgage.