Are you interested in buying a foreclosed property? Not only should you enlist the help of a real estate agent who has a background in buying and selling these types of properties, but you should also plan to consult with a real estate attorney who understands foreclosure laws and regulations—they are tricky and vary from state to state.
Whether you’re looking at a pre-foreclosure, short sale or bank-owned properties, you’re going to need the guidance of a professional who has a background in buying and selling these types of properties in your local market. The best conversation to have before you consider buying a foreclosure is the one you have with yourself: ask yourself if you have the money, time, patience, and support from those around you to repair any problems with the house.
There are three different stages of foreclosure when you may consider buying the property: pre-foreclosure, the auction phase, and the post-foreclosure stage. Pre-foreclosure is the time when the homeowner still owns the property and knows that there’s a potential for foreclosure. In this stage, the sellers will be extremely motivated and may accommodate for a short sale if the bank allows and they’re able to find a buyer fast.
If you decide not to buy a home in the pre-foreclosure stage, the second option is to purchase at auction. The next Erie County tax foreclosure auction is October 13, 2016. At this time, the date for the City of Buffalo tax foreclosure auction is being determined. Lender foreclosures are announced in local papers, typically the Buffalo Law Journal, and generally occur in the morning at the county clerk’s office.
Some foreclosures might come with baggage in the form of liens against the property, costly repairs, and so on. To get rid of the liens, if you are in the pre-foreclosure stage, you will have to either pay the whole thing off or negotiate with the lien holders to see if they’ll accept a reduced payoff. When you buy a foreclosure at auction, you have to pay cash—and the price of a foreclosure is not just the cost of the house, but may also include other liens, back interest, taxes and attorney’s fees on the property. While the opening bid may seem reasonable, by the time you outbid everyone you will have signed up for a much higher price. However, be aware that if the homeowner files bankruptcy on the day of the auction, the lender adjourns the auction. If you really want this house, you’ll have to bid on it again at another auction.
Know how much you can spend. Identify the neighborhood where you want to buy and familiarize yourself with the process of purchasing a foreclosure. It’s important to secure early financing because it’ll ensure that you’re qualified to purchase the property. Being pre-approved gives you greater bargaining power pre-foreclosure when the time comes to make an offer. For auctions, be aware that you might not have enough time to close on your loan once your bid has been accepted. Focus on one or two neighborhoods so that you are investing your time on properties that also meet your desired criteria such as size and cost. Check comparable recent sales to get a good feel for the market. Even though you’re working with a qualified agent and lender, you need to do some work upfront to become familiar with the basics of the foreclosure process.
Consider purchasing a home warranty to protect yourself in the event of potential future snafus. But be sure the warrant provides sufficient coverage for your needs.
As early in the transaction as possible, you have to check out the property itself. Do your own inspection regardless of whether you’re buying the foreclosed property from a bank or the homeowner. Additionally, a thorough inspection might find problems, or confirm the home is sound.
Lastly, approach the transaction with a long-term perspective as a foreclosed home may decline further in value. While you may be hoping for a quick flip and resell, what do you do if you can’t do that? Determine what will happen fiscally if you hold onto it for five or ten years now so that you are prepared for whatever may happen down the road.
If you are considering purchasing a foreclosed property, trust our Real Estate department to help with any issues you may have. Please contact HoganWillig with any questions about the above material, or if you wish to speak to an attorney, at (716) 636-7600. HoganWillig is located at 2410 North Forest Road in Amherst, New York 14068, with additional offices in Buffalo, Lancaster, Lockport, and Ellicottville.