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April 2006

March 2006

Thinking About Buying a Foreclosure?
You May Want to Read This First

Thinking About Buying a Foreclosure? - You May Want to Read This First

Buying a home in foreclosure sounds like a great idea. Who wouldn't want to purchase a house for 50, 60, or 70 cents on the dollar, as the late night infomercials claim? While there are great deals to be had, experts indicate that most foreclosures actually sell for 5% off market price. Still, that can turn out to be a significant savings.

There are a few important things to keep in mind when pursuing this niche. For starters, foreclosures are the epitome of a "buyer beware" transaction. As a result, you should be prepared to assume much more responsibility than you would in a traditional purchase.

Do Your Homework
Traditional sales, which are handled by real estate agents, come with guarantees as well as a team of people who are dedicated to your interests. Foreclosed homes come with almost no guarantees and require more diligence on the part of the buyer.

Another thing to keep in mind is that foreclosure transactions move very fast. Initial deposits are required almost from the onset, and closing dates come about quickly. As a buyer, it's extremely important to have your financing lined up before you start looking. This is where a mortgage professional comes in handy. If you are buying a home off the courthouse steps in an auction, you may not have the luxury of time on your side to prepare financing. You may be required to close in just a few days, or, in some cases, the same day as the auction.

It's also important to uncover any possible liens or liabilities on the property. These could range from unpaid taxes to court judgments. The sooner you find out the legal status of a property, the sooner you can assess if it's worth buying. Your mortgage professional will be able to point you in the direction of a title company or real estate attorney who can conduct the search on your behalf.

The next item of business is the condition of the property. You should realize that the majority of foreclosures have been owned by someone in the midst of serious financial difficulties. It's safe to assume that if the owner couldn't pay their note, then they probably also let some needed repairs and even general maintenance slide. Hiring a professional inspector and assessor is key to determining how serious the situation might be.

Once you're able to estimate a home's repair needs, you have a few options. You can decide it's just too much to take on financially, and pass on the property. Or, you can use that information to negotiate the price. Sometimes a home that's in need of repair makes the best investment.

Now we'll take a look at some of the legal aspects of foreclosure transactions.

To Court Or Not To Court
Foreclosure laws vary from state to state, as do the mandated timelines. Depending on where you live, this could be good news, or not-so-good news. The lion's share of your efficiency as a buyer depends on whether the state in which the property is purchased uses mortgages or deeds of trust for real estate transactions.

When a state uses mortgages, it means they also conduct their foreclosures through the courts. These transactions tend to take longer and have a range of potential pitfalls. When a state uses deeds of trust, the foreclosures are non-judicial and tend to resolve quicker and with far less aggravation.

The two timelines you will need to consider are the pre-foreclosure period and the redemption period. The pre-foreclosure period is the time between a previous owner's notification of default and the point when the property can be sold by the lender. This is also the time when the existing owner can make good on the note and keep their home, or sell it themselves. So the shorter the pre-foreclosure period, the better it is for the buyer.

The redemption period, on the other hand, is the time when the prior owner is allowed to buy back the home after the lender has sold it. Once again, the shorter this period, the better it is for the buyer. Some states have no redemption period, making it an optimal situation for purchase.

Given the criteria of short pre-foreclosure periods and no redemption periods, the following regions are the easiest ones in which to buy foreclosures: Texas, Georgia, Virginia, Washington DC, and New Hampshire.

The following states have the longest pre-foreclosure and redemption periods: Wisconsin, Idaho, North Dakota, Kentucky and Kansas.

Where To Learn More
There are many online resources which can help you locate foreclosed homes, as well as educate you in greater detail about the foreclosure process. Some of these sites provide free information while others charge a fee for the detailed listings they provide. One popular site is RealtyTrac® ( It offers access to thousands of foreclosure listings throughout the country, and the information is updated daily. If you’re interested in learning more, you can sign up for a free trial prior to subscribing to their service.

Foreclosures can be tricky, but they also present amazing investment opportunities. The key is to educate yourself and enlist the help of industry professionals like a title company, an inspector, and a real estate attorney. A good place to begin is by contacting your mortgage professional. Not only will they be able to help with financing, but they may just have the referrals you need.

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