Last time, we looked at how buying a foreclosed home can save you money and possibly get you into a bigger or nicer house than you otherwise may have been able to buy.  I also shared some of the challenges of trying to buy before or during the foreclosure sale. Today, I want to talk about the optimal time to buy a foreclosed home: once it’s actually owned, no strings attached, by the bank.

By waiting for a foreclosure sale to come and go, the issue of ownership is resolved.  Once the owner’s redemption period ends, the bank will secure and take possession of the home.  Any worries about secondary liens, squatting owners, and potential legal actions are or will be eliminated now that the bank has control of the home.  Shortly after taking possession, the bank’s “asset manger” will typically arrange for an inspection and valuation of the home.  The BPO (Broker Price Opinion) is a relatively quick and inexpensive method for the banks to get an idea of what kind of “asset” they now own  and its current marketable value given the condition of the home.

The BPO will also drive the bank’s initial listing price.  These “asset managers” are dealing with hundreds of homes and hundreds of BPOs.  And most of the asset managers are in other states from where the actual property is located.  So, it’s probably safe to assume that a great deal of weight is placed upon this BPO, this quick and cheap form of valuing the “bank asset”.

The opportunity for buyers (aside from buying in this already depressed real estate market) is finding a home who’s BPO came in well below current market value creating a really good bargain of a deal.  Sometimes the BPOs are fine, but the asset manager literally has to quickly move a block of homes off their books.  So, they price them to “sell”.  Obviously, the asset manager’s job is to balance getting the best price with moving the homes quickly, a challenging task especially since there’s so much foreclosure inventory.

Of course, buying a bank-owned home isn’t all just bargains and deals.  It’s also quite different than buying a home from a traditional seller.   For example, the price is usually based on an “as is” condition and very few banks will make significant repairs, if any, prior to closing.  While you can make the purchase agreement contingent on an inspection, sometimes it’s difficult to know for sure the total extent of potential repair and maintenance issues.  In addition, getting mortgage financing is more difficult if the home needs repairs.  Very few loan programs allow for “renovation funds” and most lenders want health and safety related items completed before they’ll approve the loan to close.  The question then becomes “who’s gonna make the repairs and who’s gonna pay for them?”  There are solutions, some more creative than others.  If you find yourself in need of some guidance here, feel free to give me call.

The time to buy is now.  So get out there and find yourself a deal!  If you need a good bank-owned property real estate agent, I’m sure I can round up a couple names there as well.

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!

The recent economic downturn and subsequent efforts by government to loosen up the credit crunch have created a truly unique environment when it comes to home prices. In many places, housing prices have dropped dramatically. According to one study by Fiserv Lending Solutions the national media home price is down as much as 26% since home prices peaked in 2006. In some places, like Michigan, prices have dropped even more drastically by as much as 40% - 50% or more.

Homes are selling in places that foreclosures are rampant, such as states like Arizona, California, Florida and Nevada. In the last quarter of 2008, almost half of all home sales fell into the “distressed” category, meaning that they were either foreclosures or short sales. As more and more foreclosures hit the market, traditional sellers have had to cut their prices in order to keep up.

This is, in many ways, a buyer’s market. You can make low home prices work for you, if you know where to look. Finding the right bank owned home or finding a home where the seller is asking for less than they owe on their mortgage may get you a very good deal on a home.

There’s another way you can make low home prices work for you, however. You can use the low home prices from short sales and from foreclosures to add pressure when making an offer on a home. Traditional sellers know that they have to compete with these homes, and may be willing to give a lot more in their negotiations than they would have just a couple of years ago.

By studying your local market and exploring all of the available options, you can make these low home prices work for you. You may be able to find the ideal home for your family, and to find it at a much lower price than you’d have hoped for.

Would you like to be kept abreast of various Real Estate Investment opportunities?

In today’s beaten-down real estate market, I’m seeing great investment opportunities on a regular basis.  Perhaps it makes sense to diversify your total asset portfolio into asset classes other than stocks and bonds.  Sometimes we’re seeing “quick-flip” opportunities as well as “buy-and-hold” rental homes.

I’ll be posting more explicit information in the coming weeks.  Meanwhile, if you’re someone who might be interested in learning more, please just send me an email to Richard@TeamWitter.com or give me a call.

Richard Witter
Real Estate & Mortgage Consultant