Foreclosures

How to avoid signing your life over to a mortgage
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cmonkey
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Foreclosures

Post by cmonkey » Sat Jul 14, 2018 6:21 pm

For those of us who purchase our homes, I'm curious if anyone has any tips or experience purchasing a forclosed home? It seems like the natural choice for this community if you are going to purchase a house, because you can almost always get the house for less than the market value of the house.

My research has led to the most important thing being a check of any lein/judgements against the property. I'm able to find tax info pretty easy, but not mortgage info. Does anyone have any advice on this? Does the RE agent you work with provide that?


I have noticed that forclosed homes tend to stay on the market longer than average, is this just because of bias against them as being "sold as is" and the assumption that there are major issues?

jacob
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Re: Forclosures

Post by jacob » Sat Jul 14, 2018 6:43 pm

Ah yes .. for those of us who buy our homes. I like that phrase. We didn't buy a foreclosure. Technically, we bought a bank-owned house which is the next step after foreclosure. If it's bank-owned then all the lien stuff is supposedly taken care off. Lien insurance, which is possible, is very cheap by the way.

One thing I realized after buying our house is that people who can't afford to pay their mortgage also can't afford to pay for upkeep/maintenance(*). This is a sliding slope. So while we've been living here, we've been dealing with 10-15 years of neglect from the previous owners. It was still a good deal in dollars but we certainly paid for that in terms of sweat and management.

Some houses that make it onto the market "this way" (as in the previous owner couldn't afford it) have minor issues ... and other houses have major issues (even sabotage). We bought one with "benign neglect": Most mechanicals were shot. However, we saw one house where the basement was flooded and another where the previous tenant left the water on to flood the house (warped floors/water damage). Apparently it used to be a thing during the credit crisis to hand over the keys to the bank when evicted but leave all the faucets on and flood/partially destroy the house. Sounds like a terrible idea ... but it happened and we saw it.

(*) Duh!

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cmonkey
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Re: Foreclosures

Post by cmonkey » Sat Jul 14, 2018 6:58 pm

That's really terrible. I'll definitely keep that mind when looking.

The one I have found is bank-owned as well, so it's also the last step in foreclosure. Post auction as well and so the bank is selling straight up at about a 35% discount to market value.

I see some places saying it can take a while to work through the offer and closing because the bank needs "bank approval" for everything, but this isn't a huge deal for us.

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Re: Foreclosures

Post by jacob » Sat Jul 14, 2018 7:10 pm

BTW everything I say is based on dealing with bank-owned RE anno 2014 ... and in the 2014 era (and our locality) the bottleneck was not the bank but the seller RE agent and other buyers. There was or is(?) a lot of corruption in our area. It helps to know someone if you're buying RE in this area. Otherwise, you're last/latter in line. Basically, there's a shitload of insider trading around here. Oh well ...

EdithKeeler
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Re: Foreclosures

Post by EdithKeeler » Sat Jul 14, 2018 8:20 pm

I see some places saying it can take a while to work through the offer and closing because the bank needs "bank approval" for everything, but this isn't a huge deal for us.
That sounds more like a short sale than an actual foreclosure. Short sale is when the owner is selling to avoid foreclosure, but they are already in arrears with the bank. The bank has to approve to make sure they get their money, and often there's some compromise worked out between the bank and the owner.

I bought a HUD home--government foreclosure. I actually bought it without actually ever seeing it (though my mom went and looked at it, and I trust her). I knew the neighborhood, and had driven by the house when I had been in town. I put a low-ball bid on it, for shits and grins, and was SHOCKED when it was accepted. I was able to have an inspection, so I wasn't buying a pig in a poke, but I had some trouble with financing, I suspect maybe because it was a small amount? (My credit was very good). There were a couple of minor things wrong with the house--one, I remember, was a chunk out of a shingle that sort of hung over the eave. LIke maybe the size of a half dollar. Nothing that would impact the roof or anything--looked like maybe a branch had hit it or something. The bank wouldn't finance the house because of that and one other thing, which i can't remember, but which was equally minor. I ended up taking a loan on my 401K and paid cash for the house ($35,000). Paid back the loan in a year, put about $15k into the house for new electrical work, refinishing the very nice hardwood floors, painting, some new appliances, and some bathroom work.

I still live here. It's small, and the neighborhood is OK (robbery notwithstanding in January--dudes were later shot and killed by another neighbor they were robbing). It's got a great big wooded yard, and it's convenient to everything, and the neighborhood is starting to be "up and coming" because of the housing shortage. People are moving in and fixing them up.

Buying the HUD home was super easy, easier still because I paid cash. And I got lucky because I got a pretty good house. I'd do it again.

SavingWithBabies
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Re: Foreclosures

Post by SavingWithBabies » Sat Jul 14, 2018 9:40 pm

@jacob and @EdithKeeler did you find your homes via generic websites like Trulia/Zillow/Redfin or on the owning entity website (ie bank or HUD)? I've been look around here at what options are available. There are Sheriff's auctions here but I think buying direct at a later stage seems less risky for a novice like myself.

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Re: Foreclosures

Post by EdithKeeler » Sat Jul 14, 2018 10:02 pm

I found my house on https://www.homepath.com/

Actually, technically I saw it when I drove by it and it was also on realtor.com (a lot of foreclosures are listed on Realtor.com). Several months later I was scrolling and saw the house that I'd driven by, and thought, "what the hell, I'll make an offer." I had my mom look at it, and had the realtor make an offer. (The realtor is listed on the Homepath entry). Had it inspected, and the rest is history. It was very easy, but like I said, more because of not having to have a mortgage.

I just checked out Homepath.com. Not nearly as many listed as there were when I did mine (2012), but there are some lovely homes listed there. My personal experience was at the time I bought was they just wanted to get them off the books--hence they took my lowball offer. I have to wonder given the current market if they're as willing to negotiate.

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Re: Foreclosures

Post by jacob » Sun Jul 15, 2018 7:42 am

@SWB - We had a buyer's agent. But whatever he found (on RMLS), I also found on redfin. What I heard was that sometimes good deals get listed after the deal has been made because someone at the bank knows a contractor/flipper who gets a heads-up to put in their bid which then gets accepted.

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Kriegsspiel
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Re: Foreclosures

Post by Kriegsspiel » Sun Jul 15, 2018 8:19 am

I bought a house that was still "pending" because my agent found out that the buyer wasn't able to go through with it and the seller was going to have to put it back on the market, so I looked at it and put in an offer that day, which was accepted. So it was on the MLS, but the agents can have inside information that helps you out, as opposed to trolling through realtor.com and redfin.com (which, I believe, scrape the MLS and aren't totally up to the minute accurate).

WRT Sheriff Sales and buying houses with liens, depending on where you live, a property bought at a Sheriff Sale might still be on the hook for liens. A Judicial Sale would have the liens wiped out, and you just pay the listed amount/auction price and you get the property. Basically, if a property doesn't sell the first time it's listed (with all the liens/mortgages/judgements attached), the county will do a title search and alert all parties with an interest in the property that they (the county) are about to list it for Judicial Sale, so that those parties can take action if they want to. Otherwise, their interests are wiped out.

You'd absolutely have to go look at any property you'd think about buying, since there's likely a good reason nobody wanted to "claim" it before it got to a Judicial Sale. Same as with foreclosed houses that are trashed. I'm sure a major reason they sit on the market so long is that fewer people have the ability to buy them with cash and fix them up, as opposed to buying a house with a mortgage.

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cmonkey
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Re: Foreclosures

Post by cmonkey » Sun Jul 15, 2018 8:37 am

Turns out the house I've found is also a HUD home. Beacon shows a LOT of info about homes and I found that's it's owned by Secretary of HUD. It's also listed on HUD's website.

From what I can tell, HUD homes are simply forclosed homes that were financed through the Federal government because the person couldn't qualify for a bank loan?

This one was owned for 10+ years 2 times in the last decade, until the last buyer 1 year ago. Then he couldn't make the payments. It looks like it's in great shape.

So we are arranging a virtual tour and will go from there.

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7Wannabe5
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Re: Foreclosures

Post by 7Wannabe5 » Sun Jul 15, 2018 8:43 am

I agree that you need some amount of cash (more than your competition), some degree of practical knowledge about real estate and home repair (at least enough to understand an inspection report), and some degree of insider information (for instance, knowing why the houses on one side of a street are in much better repair than on the other side, can't just go by railroad tracks these days) , in order to get best deal on a foreclosure, or any sort of distressed or auction property. At the bottom of the market, my sister located a good deal on a foreclosure for a friend who had cash to invest, and he just sold it for 5X what he paid, so he is now going to throw a few thousand at her as retroactive finder's fee due to his glee.

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Re: Foreclosures

Post by wheatstate » Sun Jul 15, 2018 11:56 am

There are definitely opportunities to buy houses at less than move in retail.
Regular real estate auctions can be good. The terms can be 10% non-refundable deposit at the auction and close in 30 days. No mechanical inspection clauses. as-is condition.

I went to my first sheriff's auction a couple weeks ago.
A couple lessons that I learned. If you are high bidder, you have to pay in cash or cashier's check with in two hours.
Frequently, there is a redemption period. The current owner can buy their house back at the same price you paid for 3-12 months.
The current owner can live in that house for that period of time and then sabotage it when they leave.
Getting insurance on this house that protects you from this sabotage from current owner or regular damage is difficult.
Another person can buy the redemption contract from the current owner and then pay the price you just bid. i.e. Bidder #2 can give the current owner $1000 to move and buy the contract. Buyer #2 then buys the house with more time than the high bidder.
For me, paying above land value would be difficult with these conditions. I have lots to learn before stepping up in this arena.

I would highly recommend going to a sheriff's auction before your favorite house comes up. You need to learn the specifics of that county and understand the risks. In areas that get cold, houses definitely go on sale before winter hits.

Good luck.

EdithKeeler
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Re: Foreclosures

Post by EdithKeeler » Sun Jul 15, 2018 1:37 pm

I went to my first sheriff's auction a couple weeks ago.
A couple lessons that I learned. If you are high bidder, you have to pay in cash or cashier's check with in two hours.
Frequently, there is a redemption period. The current owner can buy their house back at the same price you paid for 3-12 months.
The current owner can live in that house for that period of time and then sabotage it when they leave.
Getting insurance on this house that protects you from this sabotage from current owner or regular damage is difficult.
....
For me, paying above land value would be difficult with these conditions. I have lots to learn before stepping up in this arena.
We have a similar thing in Memphis. You can buy houses with the tax lien on it.... but the legal owner still has a year to pay the taxes on it and keep it. If that happens, you get your money back.... but it also means that for a year you can’t do anything to it or rent it, etc., even if it’s empty. Also, if someone’s living there, the buyer has the burden of evicting them.

Too much uncertainty for my taste.

RealPerson
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Re: Foreclosures

Post by RealPerson » Sun Jul 15, 2018 2:12 pm

I want to make sure I understand these recent posts. The risks related to these properties are all for properties with unpaid property taxes, auctioned by the county to receive the back taxes? This is totally different than a property sold by a bank because the owner is not paying the mortgage? When you buy a foreclosure, you own the property free and clear, correct? Sorry if this is a basic question, I just want to make sure I am thinking about it with the right assumptions.

EdithKeeler
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Re: Foreclosures

Post by EdithKeeler » Sun Jul 15, 2018 3:32 pm

I want to make sure I understand these recent posts. The risks related to these properties are all for properties with unpaid property taxes, auctioned by the county to receive the back taxes? This is totally different than a property sold by a bank because the owner is not paying the mortgage? When you buy a foreclosure, you own the property free and clear, correct? Sorry if this is a basic question, I just want to make sure I am thinking about it with the right assumptions.
Yes, buying at a tax sale is different than buying a foreclosure. If you buy at a tax lien sale, you're buying the house for the tax liens on it. Then you have the right to collect on the liens, and if you can't collect on the liens, you can foreclose on the property. Sometimes it will be a tax deed sale, in which you buy the property outright for the liens, but you still may need to evict if someone is living there. Each state may have slightly different rules--as I mentioned, in Memphis, anyway--maybe the whole state of TN--you buy the house at the tax deed sale, but the owner still has 1 year to make good on the taxes. So you're effectively buying the right to take possession of the property IF the owner doesn't pay up.

A lot of times when you're buying at a tax sale, you don't have the right to look at the property or even go inside. I used to know a couple in Atlanta who invest and buy houses this way--at least a few times--and once I know they got a real dog--burned out kitchen that was not evident from an external inspection, and once they got a jewel that looked like it had been scrubbed and freshly painted before the people moved out. A couple of times they've had to deal with squatters, and otherwise the houses were in stages of between somewhat neglected to filthy with very little maintenance over the years. I think on the kitchen burn they ended up tearing the house down and selling the lot to a neighbor.

Foreclosure is much more straightforward--the owner didn't pay their mortgage, and the bank foreclosed (or is on the verge of foreclosing, so you might be doing a short sale). With a foreclosure, as far as I know, any unpaid taxes are accounted for (ie, have been paid by the bank and addressed in the selling price by the bank). There may be exceptions to this, I don't know. I bought a foreclosure and still got title insurance, etc. just like with any other sale.

EdithKeeler
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Re: Foreclosures

Post by EdithKeeler » Sun Jul 15, 2018 3:46 pm

Here's another way to buy property cheap. At least in Memphis, and I'm guessing other cities have similar things. We have the "land bank" properties offered for sale. I've thought about buying some of these, just because I sort of love the idea of owning land and property really cheap. Usually they are really distressed properties that the city has somehow ended up with because of a seizure or a blight investigation issue or some other weird reason. Sometimes they are just oddly-shaped parcels of land; sometimes they are an almost-ruined house, sometimes they have commercial properties. A lot of times it's land the county owns and just wants to get rid of.

I hadn't looked recently, but looked up today and my county has about 5000 of these properties for sale, ranging in price from $100 to--more. One example that is tempting is a 14 acre parcel for $7000. It's land-locked, which means there's no street access at all, and I guess you'd have to work with your neighbors to get easements... and if that was easy to do, it might have already been done. I suppose you could buy it and wait until a neighboring property went up for sale.

Anyway, could be fun way to buy some property cheap and speculate a bit, just hold on until maybe someone wants it as neighborhoods change, etc.

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Re: Foreclosures

Post by George the original one » Tue Jul 17, 2018 5:24 pm

EdithKeeler wrote:
Sun Jul 15, 2018 3:46 pm
It's land-locked, which means there's no street access at all, and I guess you'd have to work with your neighbors to get easements... and if that was easy to do, it might have already been done. I suppose you could buy it and wait until a neighboring property went up for sale.
In Oregon, the surrounding owners are obligated to provide an easement if the property is landlocked. Might take a lawyer and a couple years, but it can be done. My cousin, for instance, has such a property and the neighbor refused to negotiate, so the case went to court with my cousin prevailing.

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