When To Buy A Foreclosed Home: Part One
I want to take a couple of days and talk about buying a foreclosed home. Buying a foreclosed home can be a tremendous boon, as you can often get more house for less money. However, there are some important things to consider about the timing of your purchase in relation to the overall foreclosure process.
If you’re looking into buying a foreclosed home, there are several points along the process where you will have the opportunity to jump in. At each point, however, there are a number of different factors that you need to consider. In many cases, trying to buy a foreclosed home too early can leave you with a home that has unexpected problems, while waiting too long can mean that the home is no longer available.
The first point at which you can try to buy a foreclosed home is when the home goes into foreclosure. The lender is required to place a public notice that this is the case. You’ll have to act fast at this point, and probably have some contact with a potentially disgruntled homeowner. Until the actual foreclosure sale, the home belongs to that person, and approaching them about a sale may be challenging at best. The fact is that the homeowner probably is still hoping to keep their home, rather than sell.
The most realistic time to begin the process of buying a foreclosed home is at the foreclosure auction. The foreclosure auction will typically be held on the steps of the local courthouse. The lender will start the bidding on the foreclosed home typically at the amount of the current mortgage. The obvious downside to buying a foreclosed home at this stage is that you are really buying the home without a chance to inspect it or to see what kinds of repairs it may need.
There also may be statutory redemption periods where the owner still retains possession and control even after the sale and purchase. In Michigan the typical redemption period is 6 to 12 months. Meanwhile you likely had to pay cash for the home at the action, haven’t been able to inspect it, don’t have the right to access it until after the redemption period, and you may still have to legally evict the previous owner after the required period because he/she just didn’t move out.
If all that’s not enough to deal with, what if the owner being foreclosed upon files a law suit claiming that the foreclosure process wasn’t properly executed? What if a junior lien holder does the same? You could find yourself tied up in court, spending thousands more, and possibly having to take the home all the way back through the foreclosure process again, and yes, wait out yet another redemption period. This is an extreme example, but it has indeed happened so you should be aware of the risks of buying at auction.
I’ll cover a more attractive method of buying a foreclosed home in my next post, Part Two. Until then, make it a great day!
Related posts:
- When To Buy A Foreclosed Home: Part Two
- Bank Owned Property Basics
- How To Make Low Home Prices Work For You
- First Time Home Buyers: Things to Consider
Tags: bank foreclosures, bank owned homes, buying a foreclosure, foreclosures, REO