Wednesday, October 30, 2013

Is a Foreclosure a Good Deal? Foreclosure 101 in Santa Cruz County

Is a Foreclosure a Good Deal? Foreclosure 101 in Santa Cruz County

Have you ever wanted to buy a foreclosure because you thought it would be a great deal?

Foreclosure is a process in which the owner of the home was not able to make the monthly mortgage.  After several missed payments, the bank who holds the 
mortgage attempts to redeem the mortgage amount through a sale at the courthouse steps. (NOTE: This is a Reader’s Digest version of the process.)
At the courthouse steps, if no buyer comes forward to pay the minimum amount, the bank becomes the proud new owner of a home (a.k.a. REO – Real Estate Owned).  BUT… banks do not want to be the proud new owners of homes.  They would rather have their money available to lend to others.
THUS, the bank chooses a real estate agent to represent the bank.  The real estate agent markets the home in the local MLS (Multiple Listing System) just like any other property.  And that is why you may be getting automatic notifications from your real estate agent on Foreclosed properties.  (NOTE: If you are not currently getting notified of Foreclosed properties, contact me and I will set you up.)

IS IT A DEAL or is it not a deal?  And how does that affect you as the buyer?
Most buyers think that they will “save lots of money” by buying a REO Foreclosure.  Sometimes that works and sometimes that does not.  Most of the time, a REO Foreclosure is priced at the market price or slightly below market value.  The bank is trying to get the property sold, and yet because of the actual cost in foreclosing on a property, and the mortgage balance that was owed by the seller, the bank normally is not willing to “give” the property away at a hugely discounted sales price.
From time to time, there are “deals” to be had and a wise buyer will be ready when the opportunity presents itself. 
These are a few things to consider before making an offer on a REO Foreclosure.
#1 Make sure you are a good buyer for a foreclosed property. Most purchases of foreclosed properties go beyond that of a ‘normal’ time period for a purchase meaning, instead of a 30 day escrow time, it may be 60 days or more because you are dealing with a bank.  If time is of the essence, you might not want to consider a foreclosure.  (NOTE: There are times that a REO Foreclosure actually has a normal escrow time. Make sure and discuss this with your agent.)
#2 Most banks are exempt from disclosures about the property, primarily, because they never lived in the property and really do not know much.  You will need to work closely with your agent and do some investigation on your own.  Things to investigate would be the property history, similar homes that have sold in the area, talk to the neighbors, etc.
#3 Typically, REO banks do not like paying for repairs.  They prefer you purchase the home in an “As-Is” condition. That is one less thing they have to be concerned with. You still may have an inspection, and still may ask for the bank to do some repairs. However, not asking the bank for repairs may give you a bit more leverage in negotiating the price.
So, are you still a good candidate to purchase a REO Foreclosure? 
If so, then be the best buyer you can be. Get pre-approved from a reputable lender. Be ready to act. And reap the rewards.

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