The continued stream of homes foreclosures in the United States is providing homebuyers and investors with plenty of real estate deals. Most foreclosures are sold at 5% below the market value, with even greater discounts in certain regions. Buyers can also take advantage of additional savings with perks like reduced down payments, lower interest rates or the elimination of appraisal fees and certain closing costs. Foreclosed homes are available in virtually every real estate market across the country, and can be an option for individuals, families and investors looking for a property. Foreclosure sales can take place in a variety of ways; here are five of the ways to buy a foreclosed property. (If you want to save your home, avoid bogus offers and take matters into your own hands. Check out Avoiding Foreclosure Scams.)
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A property is in pre-foreclosure after the mortgage lender has notified the borrowers that they are in default but before the property is offered for sale at auction. If a homeowner can sell the property during this time, he or she may be able to avoid foreclosure proceedings. As such, some homeowners are willing to negotiate. Pre-foreclosures are typically listed in county and city courthouse buildings. In addition, many online resources including www.foreclosure.com list properties that are in the pre-foreclosure phase.
2. Short Sales
Short sales occur when the lender is willing to accept less than what is owed on a mortgage. A borrower does not necessarily need to be in default for a lender to agree to a short sale; however, they typically need to prove some type of financial hardship, such as the loss of a job, which is likely to result in default. In order to qualify as a short sale, the lender must agree to "sell the property short" by accepting less than is owed, and the home must be listed for sale. These properties are usually advertised as short sales "pending bank approval".
Purchasing a short sale property is in most regards the same as a traditional purchase, but the language in the contracts will differ, specifying that the terms are subject to the lender's approval. A bank may take several months to respond to a short sale offer, so the process can take considerably longer than a traditional purchase. Many real estate websites, including individual firms or listing services, offer the option to search by short sale. (Mathematically speaking, walking away can sometimes be the most prudent choice. Find out how to run the numbers. Read Your Mortgage: When It's Time to Walk Away.)
3. Sheriff Sale Auctions
A sheriff sale auction occurs after the lender has notified the borrower of default and allows a grace period for the borrower to catch up on mortgage payments. An auction is designed for the lender to quickly get repaid for the loan that is in default. These auctions often occur on a city's courthouse steps, managed by the local sheriff. The property is auctioned to the highest bidder at a publicly announced place, date and time. These notices can be found in local newspapers and in many online locations by performing a search for "sheriff sale auctions". Properties are purchased "as is", so a proper inspection is important in addition to researching any liens against the property.
4. Bank Owned Properties
Properties that do not sell at auction revert back to the bank; that is, they become Real Estate Owned (REO) properties. These properties are owned by the bank and are often managed by a bank's REO department. The banks typically want to get the best price they can to cover their losses, and often avoid selling a property significantly below market value. Like a sheriff sale auction, these properties are sold "as is" - so due caution is advised. Banks will often counter a very low offer to prove to its investors and auditors that they made every attempt to recoup the most money possible from the sale. Local banks often maintain a listing of bank owned properties, and online sources such as www.realtytrac.com have extensive listings that can be searched by city, state or zip code.
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5. Government Owned Properties
Some homes are purchased with loans guaranteed by the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). When these properties go into foreclosure, they are repossessed by the government and sold by brokers working for the government. A government-registered broker must be contacted to purchase a government-owned property, or buyers can research properties on www.hud.gov (click on "TOPIC AREAS" and select "Homes for Sale").
The Bottom Line
The fact that there are so many foreclosures is unsettling. While it is difficult to imagine what these families have gone through when losing their homes, it is generally beneficial to neighborhoods to have these homes purchased, occupied and maintained.
Foreclosed properties are so commonplace that one can find them in MLS magazines, online real estate search websites, bank offices and local newspapers. People interested in buying foreclosed properties have the opportunity to work with real estate professionals who can guide them through the process, or they can do their own research. Properties in the foreclosure process can be owned by the borrower in the case of pre-foreclosure and short sale properties, or by an entity such as a bank or the government. These five ways to buy a foreclosed home introduce potential buyers to the different types of foreclosures. (Learn how to spot hot properties that you can turn around for a profit. See Foreclosure Opens Doors For Real Estate Investors.)
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